As filed with the Securities and Exchange Commission on March 15, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A-3
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
Edwards Lifesciences Corporation
formerly known as CVG Controlled Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-4316614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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17221 Red Hill Avenue
Irvine, California 92614
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:
(949) 250-2500
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
------------------- ------------------------------
Common Stock, par value $1.00 New York Stock Exchange
Series A Junior Participating Preferred New York Stock Exchange
Stock Purchase Rights (currently traded
with Common Stock)
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Securities to be registered pursuant to Section 12(g) of the Act: None.
ANNEX I
THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO EDWARDS LIFESCIENCES CORPORATION'S COMMON STOCK HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES WILL NOT BE ISSUED BEFORE THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THESE SECURITIES.
EXPLANATORY NOTE
This Registration Statement on Form 10 has been prepared on a prospective basis on the assumption that, among other things, the distribution and the related transactions contemplated to occur prior to or contemporaneously with the distribution will be consummated as contemplated by the information statement which is a part of this Registration Statement. There can be no assurance, however, that any or all of such transactions will occur or will occur as so contemplated. Any significant modifications or variations in the transactions contemplated will be reflected in an amendment or supplement to this Registration Statement.
[BAXTER LOGO]
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
847.948.2000
March [ ], 2000
To all Baxter International Inc. Stockholders:
I am pleased to inform you that on March [ ], 2000, a special committee of Baxter's board of directors declared a stock dividend to achieve a distribution of all of the outstanding shares of common stock of Edwards Lifesciences Corporation to all Baxter stockholders of record on March [ ], 2000.
Edwards Lifesciences is a new company, formed initially as a wholly owned subsidiary of Baxter, and is comprised of Baxter's CardioVascular business. Edwards Lifesciences is a leader in providing a comprehensive line of products and services to treat late-stage cardiovascular disease. The distribution is expected to make both Baxter and Edwards Lifesciences more competitive, giving each company more financial flexibility to invest and grow. We believe the combined value of two separate, but stronger companies will be greater than the value of Baxter as a whole today.
Following the distribution, Baxter will continue to focus on providing critical medical therapies that improve the lives of millions of people worldwide. We intend to invest more resources in our Blood Therapies, I.V. Systems/Medical Products and Renal businesses. These investments will further enhance our ability to bring new products to market and to expand globally. If you are a Baxter stockholder of record at the close of business on March [ ], 2000, the record date for the distribution, you will receive one share of Edwards Lifesciences common stock for every [five] shares of Baxter common stock you own on that date. Edwards Lifesciences stock certificates will be distributed beginning March [ ], 2000. No action is required on your part to receive your Edwards Lifesciences stock.
The attached information statement, which is being mailed to all Baxter stockholders, describes the distribution in detail and contains important information about Edwards Lifesciences, including financial statements.
Sincerely,
Harry M. Jansen Kraemer, Jr.
Chairman and Chief Executive Officer
[LOGO OF EDWARDS LIFESCIENCES]
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, California 92614
949.250.2500
March [ ], 2000
Dear Edwards Lifesciences Corporation Stockholder:
It is my pleasure to welcome you as a stockholder of Edwards Lifesciences Corporation. We are a leader in providing a comprehensive line of therapies and services to treat late-stage cardiovascular disease, and a significant portion of our current products and services occupy market-leading positions. Edwards Lifesciences operates in four main product lines: cardiac surgery, critical care, vascular and perfusion products and services.
I invite you to learn more about Edwards Lifesciences in the attached information statement. We expect that operating as an independent company focused on late-stage cardiovascular disease therapy will accelerate the speed of innovation of our business. We also expect that it will allow us to significantly expand our product development pipeline, and pursue attractive opportunities to expand our offerings and operations through acquisitions and strategic alliances. Ultimately, we anticipate that this will lead to innovative, diversified and improved treatment options for patients suffering from late-stage cardiovascular disease. As a more aggressive competitor, we believe that we can accelerate our future growth rate.
In 1999, we achieved net revenues of $905 million, an amount that will make us the largest company focused exclusively on the late-stage cardiovascular disease market. We expect that Edwards Lifesciences' common stock will be listed and traded on the New York Stock Exchange and that its stock symbol will be "EW. "
Our management team is eager to distinguish Edwards Lifesciences through continued strong leadership and solid financial performance. We are pleased that you, as a stockholder of Edwards Lifesciences, will participate in our mission.
Sincerely,
Michael A. Mussallem Chairman and Chief Executive Officer
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this information statement is subject to + +completion or amendment. A registration statement on Form 10 relating to + +Edwards Lifesciences' common stock has been filed with the Securities and + +Exchange Commission. These securities will not be issued before the + +registration statement becomes effective. + |
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Information Contained Herein is Subject to Completion or Amendment
Preliminary Copy Dated March 15, 2000
INFORMATION STATEMENT
Edwards Lifesciences Corporation
Common Stock
We are providing this information statement to you as a stockholder of Baxter International Inc. in connection with the distribution by Baxter to its stockholders of all of the outstanding shares of Edwards Lifesciences common stock. Edwards Lifesciences will conduct the business currently performed by Baxter's CardioVascular group.
Consider
carefully the
risk factors
beginning on
page 7 of this
information
statement.
It is expected that the distribution will be made on March [ ], 2000, to holders of record of Baxter common stock on March [ ], 2000. If you are a Baxter stockholder at the close of business on the record date, you will receive one share of Edwards Lifesciences common stock for every [five] shares of Baxter common stock you hold on that date. Certificates for the shares will be mailed to you, or your brokerage account will be credited for the shares, on or about March [ ], 2000. Fractional shares will not be issued and you will receive a check or a credit to your brokerage account for the cash equivalent of any fractional shares you otherwise would have received in the distribution. You will not be required to pay anything for the shares of Edwards Lifesciences common stock to be distributed to you, nor will you be required to surrender or exchange your shares of Baxter common stock or take any other action in order to receive Edwards Lifesciences common stock.
Stockholder
approval of the
distribution of
Edwards
Lifesciences
common stock is
not required.
We are not
asking you for
a proxy and we
request that
you do not send
us a proxy.
Also, you are
not required to
make any
payment for the
shares of
Edwards
Lifesciences
common stock
that you will
receive.
Application has been made to list the Edwards Lifesciences common stock on the New York Stock Exchange under the symbol "EW."
This
information
statement is
not an offer to
sell, or a
solicitation of
any offer to
buy, any
securities of
Edwards
Lifesciences
Corporation or
Baxter
International
Inc.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the Edwards Lifesciences common stock, or determined that this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this information statement is March [ ], 2000.
TABLE OF CONTENTS
ITEM PAGE ---- ---- SUMMARY.................................................................... 1 Edwards Lifesciences' Business........................................... 1 Questions and Answers about Edwards Lifesciences and the Distribution.... 2 Summary Historical Financial Data........................................ 5 Summary Unaudited Pro Forma Financial Data............................... 6 RISK FACTORS............................................................... 7 Risks Related to Edwards Lifesciences' Business.......................... 7 Risks Related to the Health Care Industry................................ 12 Risks Related to Edwards Lifesciences' Separation from Baxter............ 13 Risks Related to Ownership of Edwards Lifesciences' Common Stock......... 14 FORWARD-LOOKING STATEMENTS................................................. 16 EDWARDS LIFESCIENCES' BUSINESS............................................. 17 Overview................................................................. 17 Business Strategy........................................................ 17 Edwards Lifesciences' Product and Service Offerings...................... 18 Cardiac Surgery.......................................................... 19 Critical Care............................................................ 20 Vascular................................................................. 21 Perfusion Products and Services.......................................... 21 Competition.............................................................. 22 Sales and Marketing...................................................... 23 Raw Materials and Manufacturing.......................................... 23 Quality Assurance........................................................ 24 Research and Development................................................. 24 Proprietary Technology................................................... 25 Government Regulation and Other Matters.................................. 26 Properties............................................................... 28 Employees................................................................ 28 EDWARDS LIFESCIENCES' RELATIONSHIP WITH BAXTER AFTER THE DISTRIBUTION...... 28 General.................................................................. 28 Reorganization Agreement................................................. 29 Tax Sharing Agreement.................................................... 31 Distribution Agreements.................................................. 32 Services and Other Agreements............................................ 32 THE DISTRIBUTION........................................................... 33 Background and Reasons for the Distribution.............................. 33 Manner of Effecting the Distribution..................................... 33 Accounting Treatment of Plan of Reorganization........................... 34 Important Federal Income Tax Consequences................................ 34 Market for Edwards Lifesciences Common Stock............................. 35 Dividend Policy.......................................................... 36 Distribution Conditions and Termination.................................. 36 Opinions of Financial Advisors........................................... 37 SELECTED HISTORICAL FINANCIAL DATA OF EDWARDS LIFESCIENCES................. 38 EDWARDS LIFESCIENCES' UNAUDITED PRO FORMA FINANCIAL DATA................... 39 |
ITEM PAGE ---- ---- EDWARDS LIFESCIENCES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................... 42 Overview................................................................ 42 Results of Operations................................................... 43 Liquidity and Capital Resources......................................... 47 Euro Conversion......................................................... 47 New Accounting and Disclosure Standard.................................. 48 Currency Risk........................................................... 48 FINANCING................................................................. 48 EDWARDS LIFESCIENCES MANAGEMENT........................................... 49 Board of Directors...................................................... 49 Committees of the Board of Directors.................................... 50 Compensation of Directors............................................... 51 Executive Officers...................................................... 51 EDWARDS LIFESCIENCES EXECUTIVE COMPENSATION............................... 54 1999 Compensation of Executive Officers................................. 54 Stock Option Grants..................................................... 55 Stock Option Exercises.................................................. 56 Pension Plan and Excess Pension Plan.................................... 56 Baxter Common Stock Held By Edwards Lifesciences Employees.............. 57 Future Compensation of Executive Officers............................... 57 Long-Term Stock Program................................................. 58 Edwards Lifesciences Change of Control Plan and Employment Agreement.... 60 Edwards Lifesciences Retirement Plan for United States Employees........ 61 Employee Stock Purchase Plan for United States Employees................ 63 Transition Options for Salaried Exempt Employees........................ 63 Initial Stock Option Grant for Salaried Employees Worldwide............. 64 Employee Stock Purchase Plan for Employees Outside the United States.... 64 Initial Stock Grant for Hourly Employees Outside the United States...... 64 Other Retirement Plans for Employees Outside the United States.......... 64 SECURITY OWNERSHIP OF EDWARDS LIFESCIENCES................................ 65 DESCRIPTION OF EDWARDS LIFESCIENCES CAPITAL STOCK......................... 66 Authorized Capital Stock................................................ 66 Edwards Lifesciences Common Stock....................................... 66 Edwards Lifesciences Preferred Stock.................................... 66 Edwards Lifesciences Rights Agreement................................... 66 CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF EDWARDS LIFESCIENCES' CERTIFICATE OF INCORPORATION AND BYLAWS AND OF DELAWARE LAW.............. 68 Certificate of Incorporation and Bylaws................................. 68 Delaware Law............................................................ 71 LIMITATION OF LIABILITY AND INDEMNIFICATION OF EDWARDS LIFESCIENCES DIRECTORS AND OFFICERS................................................... 71 Limitation of Liability of Directors.................................... 71 Indemnification of Directors and Officers............................... 72 EDWARDS LIFESCIENCES' 2001 ANNUAL MEETING OF STOCKHOLDERS................. 72 ADDITIONAL INFORMATION.................................................... 72 INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE....................... F-1 |
SUMMARY
This summary highlights selected information from this information statement, but does not contain all details concerning the distribution of the Edwards Lifesciences common stock to Baxter stockholders, including information that may be important to you. To better understand the distribution, and the business and financial position of Edwards Lifesciences, you should carefully review this entire document. References in this information statement to "Edwards Lifesciences" mean Edwards Lifesciences Corporation, a Delaware corporation, and its subsidiaries and affiliates following the distribution. References in this information statement to the CardioVascular business mean the CardioVascular business as conducted by Baxter for periods prior to the distribution date. References in this information statement to "Baxter" mean Baxter International Inc., a Delaware corporation, and its subsidiaries and affiliates.
Edwards Lifesciences' Business
Edwards Lifesciences designs, develops, manufactures and markets a comprehensive line of products and services to treat late-stage cardiovascular disease. Edwards Lifesciences is the worldwide leader in the development, marketing and sale of both tissue replacement heart valves and heart valve repair products. Edwards Lifesciences' product lines are grouped into four general areas: cardiac surgery, critical care, vascular and perfusion products and services. Edwards Lifesciences also offers a diverse grouping of other product lines comprised mostly of pharmaceuticals and select distributed products. Edwards Lifesciences supplies its products and services to customers in more than 80 countries, both through direct sales and distribution relationships, and reported annual sales in 1999 of $905 million.
Edwards Lifesciences' cardiac surgery product lines include products relating to heart valve therapy, a left ventricular assist device, as well as cannulae and cardioplegia products used during open heart surgery. Edwards Lifesciences' critical care product offerings include hemodynamic monitoring devices for measuring heart pressure and output during surgical procedures and in post-surgical intensive care settings. Edwards Lifesciences has been a world leader in this area since the development of its Swan-Ganz catheter more than 30 years ago. Edwards Lifesciences' vascular products include a line of balloon-tipped, catheter-based products, surgical clips and inserts, angioscopy equipment and artificial implantable grafts. The perfusion products offered by Edwards Lifesciences include a diverse line of disposable and hardware products used during cardiopulmonary bypass procedures, including oxygenators, blood containers, filters and related devices and heart-lung machines. Edwards Lifesciences also is the world's leading provider of contract perfusion services with a staff of more than 400 clinical perfusionists who perform an aggregate of more than 50,000 perfusion cases for open heart surgery per year.
Edwards Lifesciences employs over 5,000 people and its products are manufactured throughout the world, including Brazil, the Dominican Republic, Japan, The Netherlands, Puerto Rico, Switzerland and the United States. Edwards Lifesciences' headquarters are located at 17221 Red Hill Avenue, Irvine, California 92614 and its telephone number is 949.250.2500. Edwards Lifesciences was incorporated in Delaware in 1999.
As of the distribution date, Baxter will have transferred its CardioVascular business to Edwards Lifesciences, a newly formed Delaware corporation. Baxter will distribute the shares of Edwards Lifesciences common stock to Baxter stockholders on a proportionate basis beginning on March [ ], 2000.
The distribution of the shares of Edwards Lifesciences common stock will be effective on the distribution date. No vote of Baxter's stockholders is required to approve the distribution of the Edwards Lifesciences common stock.
Questions and Answers about Edwards Lifesciences and the Distribution
Why is Baxter separating Baxter is creating an independent, publicly traded
Edwards Lifesciences? company for its CardioVascular business because its
management believes that the combined value of two
separate companies will be greater than the value
of Baxter as a whole today. Edwards Lifesciences
expects that the distribution will allow it to
compete more effectively in the intensely
competitive and rapidly consolidating
cardiovascular device industry. Edwards
Lifesciences believes that as an independent
company, it will increase the level of funding of,
and commitment to, intense research and development
with a focus on enhancing its number and diversity
of new products. Edwards Lifesciences also expects
that it will be more aggressive in pursuing
acquisition and strategic alliance opportunities as
an independent company with the ability to use its
stock as currency. Having a publicly traded equity
security will also enable Edwards Lifesciences to
better attract and retain key employees by more
directly linking its employees' compensation with
Edwards Lifesciences' performance.
Following the distribution, Baxter intends to
invest more resources in its remaining core
businesses, which it expects will further enhance
its ability to successfully commercialize new
products and to expand its global markets.
What will the After the distribution, Baxter and Edwards
relationship be between Lifesciences will be separate, publicly owned
Edwards Lifesciences and companies. Baxter and Edwards Lifesciences will
Baxter after the enter into certain agreements to define their
distribution? ongoing relationship after the distribution. These
agreements also will allocate responsibility for
obligations both before and after the distribution
date. See "Edwards Lifesciences' Relationship With
Baxter After The Distribution" beginning on page
28.
How will Edwards
Lifesciences be managed? Edwards Lifesciences' operating management team
will be essentially the same as Baxter's
CardioVascular business had during the period prior
to the distribution. Michael A. Mussallem will be
the Chairman of the Board and Chief Executive
Officer of Edwards Lifesciences. Mr. Mussallem has
extensive experience in the medical products and
services industry, having been with Baxter for over
twenty years. Mr. Mussallem will be supported by an
experienced management team that will include
Stuart L. Foster and Anita B. Bessler, who together
have spent in excess of 45 collective years in the
industry. In addition, Edwards Lifesciences has
added Bruce Bentcover as Chief Financial Officer
and Bruce Garren as General Counsel, both of whom
have previous public-company experience. See
"Edwards Lifesciences Management--Executive
Officers" beginning on page 51.
The Edwards Lifesciences board of directors is
expected to initially consist of six persons,
including Mr. Mussallem and five independent
directors. See "Edwards Lifesciences Management--
Board of Directors" beginning on page 49.
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When will the March [ ], 2000. Baxter will distribute the shares
distribution happen? of Edwards Lifesciences common stock on the
distribution date, which will be on or about March
[ ], 2000, to holders of Baxter common stock on the
record date.
What is the record date March [ ], 2000
for the distribution?
What do I have to do to Nothing. You are not required to take any action to
participate in the receive Edwards Lifesciences common stock in the
distribution? distribution. No proxy or vote is necessary for the
distribution. If you own Baxter common stock as of
the close of business on the record date, shares of
Edwards Lifesciences common stock will be mailed to
you or credited to your brokerage account on March
[ ], 2000. You do not need to mail in Baxter common
stock certificates to receive Edwards Lifesciences
common stock certificates. The number of shares of
Baxter common stock you own will not change as a
result of the distribution.
How many shares of Baxter will distribute one share of Edwards
Edwards Lifesciences Lifesciences common stock, along with associated
common stock will I preferred stock purchase rights, for every [five]
receive? shares of Baxter common stock you own as of the
close of business on the record date. For example,
if you own [100] shares of Baxter common stock on
the record date, you will receive [20] shares of
Edwards Lifesciences common stock in the
distribution. Based on approximately [290,199,514]
shares of Baxter common stock that we expect to be
outstanding on the record date for the
distribution, Baxter will distribute a total of
approximately [58,039,903] shares of Edwards
Lifesciences common stock.
Will Baxter distribute No. Baxter will not distribute any fractional
fractional shares? shares of Edwards Lifesciences common stock. You
will receive a check or a credit to your brokerage
account for the cash equivalent of any fractional
shares you otherwise would have received in the
distribution, less applicable taxes. The amount of
the cash payment will depend upon the prices at
which the fractional shares are sold in the open
market on or about the distribution date.
Is the distribution The distribution is conditioned on Baxter receiving
taxable for United States a ruling from the United States Internal Revenue
federal income tax Service substantially to the effect that the
purposes? distribution will be tax-free to Baxter and to
Baxter's United States stockholders, except with
respect to cash paid in lieu of fractional shares
of Edwards Lifesciences common stock. See "The
Distribution--Important Federal Income Tax
Consequences" beginning on page 34, for a more
complete discussion of the United States federal
income tax consequences of the distribution to
holders of Baxter common stock.
Will I be paid any Edwards Lifesciences has no current plans to pay
dividends on the Edwards dividends following the distribution. Edwards
Lifesciences common Lifesciences will pay dividends on Edwards
stock? Lifesciences common stock only if declared by the
Edwards
3
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Lifesciences board of directors in its sole
discretion following the distribution. The payment
and level of cash dividends, if any, will be based
upon a number of factors, including the operating
results, cash flow and financial requirements of
Edwards Lifesciences. See "The Distribution--
Dividend Policy" beginning on page 36.
Where will my shares of Edwards Lifesciences expects that its common stock
Edwards Lifesciences will be listed on the New York Stock Exchange under
common stock trade? the symbol "EW." See "The Distribution--Market for
Edwards Lifesciences Common Stock" beginning on
page 35.
What will happen to the Nothing. Baxter common stock will continue to be
listing of Baxter's listed on the NYSE under the symbol "BAX."
shares on the New York
Stock Exchange?
Will the distribution Yes. After the distribution, the trading price of
affect the trading price Baxter common stock is likely to be lower than the
of my Baxter common trading price immediately prior to the
stock? distribution. Moreover, the trading price of Baxter
common stock may fluctuate after the distribution
as the market evaluates the operations of Baxter
without the business of Edwards Lifesciences. Until
the market has fully analyzed Edwards Lifesciences'
business, the prices at which the Edwards
Lifesciences common stock trades may fluctuate
significantly. The combined market value of Baxter
common stock and Edwards Lifesciences common stock
may be less than, equal to or greater than the
market value of Baxter common stock prior to the
distribution. See "The Distribution--Market for
Edwards Lifesciences Common Stock" beginning on
page 35.
Who do I contact for Before the distribution, you should direct
information regarding the inquiries relating to the distribution to:
distribution and Edwards
Lifesciences? Baxter International Inc.
One Baxter Parkway
Deerfield, IL 60015
Attention: Investor Relations
847.948.2000
After the distribution, you should direct inquiries
relating to an investment in Edwards Lifesciences
common stock to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, CA 92614
Attention: Investor Relations
949.250.2500
After the distribution, the transfer agent and
registrar for the Edwards Lifesciences common stock
will be:
First Chicago Trust Company,
a division of EquiServe
Shareholder Relations
P.O. Box 2500
Jersey City, NJ 07303-2500
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Summary Historical Financial Data
The following table sets forth summary historical combined financial data for Edwards Lifesciences. The historical combined financial data of Edwards Lifesciences are derived from the "Combined Financial Statements," which are included elsewhere in this information statement. See Note 3 to "Combined Financial Statements" and "Edwards Lifesciences Management's Discussion and Analysis of Financial Condition and Results of Operations" for discussions of the effect of certain Edwards Lifesciences acquisitions on Edwards Lifesciences' revenues, expenses and financial position.
For the years ended
December 31,
----------------------
1999 1998 1997
------ ------ ------
(in millions)
Income Statement Data
Net sales........................................ $ 905 $ 865 $ 879
Gross profit..................................... $ 439 $ 399 $ 416
Net income (loss) (a)............................ $ 82 $ 62 $ (52)
Balance Sheet and Cash Flow Data
Cash flow provided from operations............... $ 176 $ 176 $ 163
Cash flow from investment transactions, net...... $ (49) $ (52) $ (58)
Cash flow from financing transactions, net....... $ (127) $ (124) $ (105)
Total assets..................................... $1,437 $1,483 $1,526
Other Data
EBITDA (a)(b).................................... $ 197 $ 175 $ 197
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(b) EBITDA, or earnings before interest, income taxes, depreciation, amortization and other significant non-cash charges, is presented because it is a widely accepted indicator used by certain investors and analysts to compare and analyze companies on the basis of operating performance. We believe a presentation of earnings before certain noncash charges may enhance an investor's comparisons of competitor companies that have historically used different methods of accounting for business combinations. EBITDA in 1997 excludes the $132 million in-process research and development charge relating to the acquisition of Research Medical, Inc.
EBITDA is not intended to represent cash flows for the period, nor is it presented as an alternative to operating income or as an indicator of operating performance. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States (GAAP). Disclosure regarding cash flows from operating, investing and financing transactions is presented in "Edwards Lifesciences Management's Discussion and Analysis of Financial Condition and Results of Operations." Further, EBITDA is not indicative of operating income or cash flow from operations as determined under GAAP. Items excluded from EBITDA are significant components in understanding and assessing financial performance. Our method of computation may or may not be comparable to other similarly titled measures of other companies.
(c) These results present Edwards Lifesciences on a divisional basis as it has historically been operated as part of Baxter. Subsequent to the distribution, the Edwards Lifesciences' Japan operations will be presented on an equity basis as opposed to the consolidation method reflected in the historical results. As such, the results reflected here will not be comparable to the presentation subsequent to the distribution. See "Unaudited Pro Forma Financial Data."
Summary Unaudited Pro Forma Financial Data
The following table sets forth summary unaudited pro forma financial data. This data presents the combined results of Edwards Lifesciences assuming that the transactions contemplated by the distribution had been completed as of January 1, 1999. See page 39 for computation of pro forma amounts, including descriptions of the pro forma adjustments.
We have prepared the summary unaudited pro forma information utilizing the historical combined financial statements of Edwards Lifesciences. You should read this information in conjunction with the historical combined financial statements and notes to those statements, included elsewhere in this information statement. The summary unaudited pro forma financial data does not purport to be indicative of the results of Edwards Lifesciences in the future or what the financial position and results of operations would have been had Edwards Lifesciences been a separate, stand-alone entity during the periods shown. Pro forma cash flows are not presented as such amounts would not be factually supportable.
For the year
ended
December 31,
1999
------------
(in millions)
Net sales............................................ $809
Gross profit......................................... $377
Net income........................................... $ 41
EBITDA (a)........................................... $163
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RISK FACTORS
Consider carefully all of the information contained in this information statement and, in particular, the following factors:
Risks Related to Edwards Lifesciences' Business
If Edwards Lifesciences does not introduce new products in a timely manner, its products may become obsolete, and its operating results may suffer.
The cardiovascular products industry is characterized by rapid technological changes, frequent new product introductions and evolving industry standards. Without the timely introduction of new products and enhancements, Edwards Lifesciences' products will likely become technologically obsolete over time, in which case Edwards Lifesciences' revenue and operating results would suffer. The success of Edwards Lifesciences' new product offerings will depend on several factors, including its ability to:
. properly identify and anticipate customer needs;
. innovate and develop new technologies and applications;
. successfully commercialize new technologies in a timely manner;
. manufacture and deliver products in sufficient volumes on time;
. differentiate Edwards Lifesciences' offerings from competitors offerings; and
. price products competitively.
In addition, new technologies that Edwards Lifesciences develops may not be accepted quickly because of industry-specific factors, such as the need for regulatory clearance, unanticipated restrictions imposed on approved indications, entrenched patterns of clinical practice, uncertainty over third- party reimbursement and clinicians' fears of malpractice suits.
Moreover, significant technical innovations generally will require a substantial investment before Edwards Lifesciences can determine the commercial viability of these innovations. Edwards Lifesciences may not have the financial resources necessary to fund these technical innovations. In addition, even if Edwards Lifesciences is able to successfully develop enhancements or new generations of its products, these enhancements or new generations of products may not produce revenue in excess of the costs of development, and they may be quickly rendered obsolete by changing customer preferences or the introduction by Edwards Lifesciences' competitors of products embodying new technologies or features.
Edwards Lifesciences may incur product liability and professional liability losses and insurance coverage may be inadequate or unavailable to cover these losses.
Edwards Lifesciences' business exposes it to potential product liability risks that are inherent in the design, manufacture and marketing of medical devices. Edwards Lifesciences' products are often used in surgical and intensive care settings with seriously ill patients. In addition, some of the medical devices manufactured and sold by Edwards Lifesciences are designed to be implanted in the human body for long periods of time. Edwards Lifesciences could be the subject of product liability suits alleging that component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information could result in an unsafe condition or injury to patients. Product liability lawsuits and claims, safety alerts or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on Edwards Lifesciences' business and reputation and on its ability to attract and retain customers. In addition, Edwards Lifesciences' perfusion services subsidiaries expose it to medical malpractice risks. In recent years, physicians, hospitals and other medical- service providers have become subject to an increasing number of lawsuits alleging medical malpractice. Medical malpractice suits often involve large claims and substantial defense costs.
Upon the distribution, Edwards Lifesciences will assume the defense of litigation involving claims related to the CardioVascular business and will indemnify Baxter for all related losses, costs and expenses. As part of its
risk management policies, Edwards Lifesciences intends to seek third-party product liability and professional liability insurance coverage. However, Edwards Lifesciences is not certain that it will be able to obtain product liability and professional liability insurance on commercially reasonable terms, if at all. Furthermore, product liability claims against Edwards Lifesciences may exceed the coverage limits of any insurance policies or cause Edwards Lifesciences to record a self-insured loss. Edwards Lifesciences maintains professional liability insurance coverage for individuals employed by the subsidiary who perform perfusion services, although the amount of that coverage may not be sufficient. Further, even if any product liability or professional liability losses are covered by an Edwards Lifesciences insurance policy, these policies may have substantial retentions or deductibles that provide that Edwards Lifesciences will not receive insurance proceeds until the losses incurred by Edwards Lifesciences exceed the amount of those retentions or deductibles. To the extent that any losses are below these retentions or deductibles, Edwards Lifesciences will be responsible for paying these losses. A product liability or professional liability claim in an amount in excess of applicable insurance could have a material adverse effect on Edwards Lifesciences.
Edwards Lifesciences may experience supply interruptions that could harm its ability to manufacture products.
Edwards Lifesciences uses a diverse and broad range of raw and organic materials and other items in the design and manufacture of its products. Edwards Lifesciences' non-implantable products are manufactured from man-made raw materials including resins, chemicals, electronics and metals. Edwards Lifesciences' heart valve therapy products are manufactured from natural animal tissue and man-made materials. Edwards Lifesciences purchases certain of the materials and components used in the manufacture of its products from external suppliers. In addition, Edwards Lifesciences purchases certain supplies from single sources for reasons of quality assurance, cost- effectiveness or constraints resulting from regulatory requirements. Edwards Lifesciences works closely with its suppliers to assure continuity of supply while maintaining high quality and reliability. Alternative supplier options are generally considered and identified, although Edwards Lifesciences does not typically pursue regulatory qualification of alternative sources due to the strength of its existing supplier relationships and the time and expense associated with the regulatory process. Although a change in suppliers could require significant effort or investment by Edwards Lifesciences in circumstances where the items supplied are integral to the performance of Edwards Lifesciences' products or incorporate unique technology, management does not believe that the loss of any existing supply contract would have a material adverse effect on the company.
In an effort to reduce potential product liability exposure, certain suppliers have announced that they intend to limit or terminate sales of certain materials and parts to companies that manufacture implantable medical devices. In the past, Baxter has been required in specific instances to indemnify certain suppliers for its CardioVascular business for product liability expenses. There can be no assurance that an indemnity from Edwards Lifesciences will be satisfactory to these suppliers. If Edwards Lifesciences is unable to obtain these raw materials or there is a significant increase in the price of materials or components, its business could be harmed.
Edwards Lifesciences may not successfully identify and complete acquisitions or strategic alliances on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances; Edwards Lifesciences may be required to incur additional indebtedness to fund any acquisitions.
As part of Edwards Lifesciences' growth strategy, Edwards Lifesciences intends to aggressively seek to acquire complementary businesses, technologies, services or products and to enter into strategic alliances. Edwards Lifesciences may be unable to find suitable acquisition candidates. Even if Edwards Lifesciences identifies appropriate acquisition or alliance candidates, Edwards Lifesciences may be unable to complete such acquisitions on favorable terms, if at all. In addition, the process of integrating an acquired business, technology, service or product into Edwards Lifesciences' existing business and operations may result in unforeseen
operating difficulties and expenditures. Integration of an acquired company also may require significant management resources that otherwise would be available for ongoing development of Edwards Lifesciences' business. Moreover, Edwards Lifesciences may not realize the anticipated benefits of any acquisition. Future acquisitions could also require issuances of equity securities, the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could harm Edwards Lifesciences' business. Edwards Lifesciences currently does not have any current understandings, commitments or agreements with respect to any material acquisition.
Edwards Lifesciences also intends to pursue strategic alliances with third parties. Edwards Lifesciences may not identify appropriate partners with which to form partnerships or strategic alliances. Any alliances may not generate anticipated financial results.
Edwards Lifesciences' business is subject to economic, political and other risks associated with international sales and operations.
Because Edwards Lifesciences sells its products in a number of foreign countries, its business is subject to risks associated with doing business internationally. Edwards Lifesciences' net revenue originating outside of the United States, as a percentage of Edwards Lifesciences' total net revenue, was 41% in 1998 and 44% in 1999. Edwards Lifesciences anticipates that revenue from international operations will continue to represent a substantial portion of its total revenue. In addition, many of Edwards Lifesciences' manufacturing facilities and suppliers are located outside of the United States. Edwards Lifesciences management expects to increase its sales efforts internationally, which could expose it to greater risks associated with international sales and operations. Accordingly, Edwards Lifesciences' future results could be harmed by a variety of factors, including:
. changes in foreign medical reimbursement policies and programs;
. unexpected changes in foreign regulatory requirements;
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic conditions, particularly in emerging regions;
. trade protection measures and import or export licensing requirements;
. potentially negative consequences from changes in tax laws;
. difficulty in staffing and managing foreign operations;
. differing labor regulations; and
. differing protection of intellectual property.
Edwards Lifesciences will be subject to risks arising from currency exchange rate fluctuations.
Approximately 44% of Edwards Lifesciences' revenues in 1999 were generated from outside of the United States. Measured in local currency, a substantial portion of Edwards Lifesciences foreign-generated revenues were generated in Europe (and primarily denominated in the Euro) and in Japan. The United States dollar value of Edwards Lifesciences' foreign-generated revenues varies with currency exchange rate fluctuations. Significant increases in the value of the United States dollar relative to the Euro or the Japanese Yen, as well as other currencies, could have a material adverse effect on Edwards Lifesciences' results of operations. The CardioVascular business has historically been considered in Baxter's overall risk management strategy. As part of this strategy, Baxter has used financial instruments to reduce its exposure to adverse movements in currency exchange rates. As an independent company, Edwards Lifesciences plans to implement a hedging policy which
will attempt to manage currency exchange rate risks to an acceptable level based on management's judgment of the appropriate trade-off between risk, opportunity and cost; however this hedging policy may not successfully eliminate the effects of currency exchange rate fluctuations.
The conversion to the Euro has required Edwards Lifesciences to modify its business operations and if these modifications are not successful or if there are any negative economic developments in the European Union, Edwards Lifesciences' business may be negatively affected.
On January 1, 1999, eleven member countries of the European Union established fixed conversion rates between their existing currencies and one common currency, the Euro. Uncertainties exist as to the effects the Euro may have on Edwards Lifesciences' European customers, as well as the impact of the Euro conversion on the economies of the participating countries. Approximately 44% of Edwards Lifesciences' revenues in 1999 were derived from outside the United States, a significant portion of which were generated in Europe and primarily denominated in currencies linked to the Euro since January 1, 1999. Any negative economic developments that occur in the combined European Union economy and the possible devaluation of the Euro could have a material negative impact on Edwards Lifesciences' business.
Potential effects on Edwards Lifesciences' operations include:
. the need to modify business systems to recognize the Euro as a functional currency; and
. the competitive impact of cross-border price transparency, which may make it more difficult for a business to charge different prices for the same products on a country-by-country basis, particularly once the Euro currency begins circulation in 2002.
Edwards Lifesciences will continue to evaluate the impact of the introduction of the Euro as Edwards Lifesciences continues to expand its operations throughout Europe.
Fluctuations in Edwards Lifesciences' quarterly operating results may cause Edwards Lifesciences' stock price to decline.
Edwards Lifesciences' revenue and operating results may vary significantly from quarter to quarter. A high proportion of Edwards Lifesciences' costs are fixed, due in part to significant sales, research and development and manufacturing costs. Thus, small declines in revenue could disproportionately affect operating results in a quarter, and the price of Edwards Lifesciences common stock may fall. Other factors that could affect quarterly operating results include:
. demand for and clinical acceptance of products;
. the timing and execution of customer contracts, particularly large contracts that would materially affect Edwards Lifesciences' operating results in a given quarter;
. the timing of sales of products;
. changes in foreign currency exchange rates;
. unanticipated delays or problems in introducing new products;
. competitors' announcements of new products, services or technological innovations;
. changes in Edwards Lifesciences' pricing policies or the pricing policies of its competitors;
. increased expenses, whether related to sales and marketing, raw materials or supplies, product development or administration;
. adverse changes in the level of economic activity in the United States and other major regions in which Edwards Lifesciences does business;
. costs related to possible acquisitions of technologies or businesses;
. Edwards Lifesciences' ability to expand its operations; and
. the amount and timing of expenditures related to expansion of Edwards Lifesciences' operations.
Edwards Lifesciences' inability to protect its intellectual property could have a material adverse effect on its business.
Edwards Lifesciences' success and competitive position are dependent, in part, upon its proprietary intellectual property. Edwards Lifesciences relies on a combination of patents, trade secrets and nondisclosure agreements to protect its proprietary intellectual property, and will continue to do so. Although Edwards Lifesciences seeks to protect its proprietary rights through a variety of means, Edwards Lifesciences cannot guarantee that the protective steps it has taken are adequate to protect these rights. Patents issued to or licensed by Edwards Lifesciences in the past or in the future may be challenged and held invalid or not infringed by third parties. Competitors may also challenge Edwards Lifesciences' patents.
Edwards Lifesciences will also rely on confidentiality agreements with certain employees, consultants and other parties to protect, in part, trade secrets and other proprietary information. These agreements could be breached and Edwards Lifesciences may not have adequate remedies for any breach. In addition, others may independently develop substantially equivalent proprietary information or gain access to Edwards Lifesciences' trade secrets or proprietary information.
Edwards Lifesciences will be required to spend significant resources to monitor and enforce its intellectual property rights. Edwards Lifesciences may not be able to detect infringement and may lose its competitive position in the industry. In addition, competitors may design around Edwards Lifesciences' technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture increased market position.
Third parties may claim Edwards Lifesciences is infringing their intellectual property, and Edwards Lifesciences could suffer significant litigation or licensing expenses or be prevented from selling products.
During recent years, Baxter's competitors have been involved in substantial litigation regarding patent and other intellectual property rights in the medical device industry generally. In the future, Edwards Lifesciences may be forced to defend itself against claims and legal actions alleging infringement of the intellectual property rights of others. Because intellectual property litigation can be costly and time consuming, Edwards Lifesciences' intellectual property litigation expenses could be significant in the future. Adverse determinations in any such litigation could subject Edwards Lifesciences to significant liabilities to third parties, could require Edwards Lifesciences to seek licenses from third parties and could, if such licenses are not available, prevent Edwards Lifesciences from manufacturing, selling or using certain of its products, any one of which could have a material adverse effect on Edwards Lifesciences.
Third parties could also obtain patents that may require Edwards Lifesciences to either re-design its products or, if possible, negotiate licenses to conduct its business. If Edwards Lifesciences is unable to re- design its products or obtain a license, Edwards Lifesciences may have to exit a particular product offering.
Edwards Lifesciences has not previously operated as an independent company.
Edwards Lifesciences does not have an operating history as an independent public company and Edwards Lifesciences' management has no experience, as a group, in operating Edwards Lifesciences as a stand-alone business. While Edwards Lifesciences has been profitable as a part of Baxter, there is no assurance that as a stand-alone company revenues and profits will continue at the same level. For more information, see "Combined Financial Statements."
The agreements governing Edwards Lifesciences' indebtedness will contain restrictive covenants that may limit Edwards Lifesciences' future financial flexibility.
In connection with the distribution, Edwards Lifesciences will borrow approximately $520 million. This indebtedness is reflected in the pro forma financial information presented elsewhere in this information statement.
The debt agreements relating to this indebtedness will contain restrictive covenants which may limit or prohibit certain actions by Edwards Lifesciences. For more information, see "Edwards Lifesciences Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Edwards Lifesciences' Unaudited Pro Forma Financial Data" and "Financing."
Risks Related to the Health Care Industry
Edwards Lifesciences faces intense competition and consolidation within its industry, and if Edwards Lifesciences does not compete effectively, its business will be harmed.
The cardiovascular medical products industry is highly competitive. Edwards Lifesciences competes with many companies, some of which have longer operating histories, better brand or name recognition and greater access to financial and other resources than Edwards Lifesciences. Furthermore, the industry is characterized by intensive development efforts and rapidly advancing technology. Edwards Lifesciences' present and future products could be rendered obsolete or uneconomical by technological advances by one or more of Edwards Lifesciences' current or future competitors or by alternative therapies, including drug therapies. The future success of Edwards Lifesciences will depend, in large part, on its ability to anticipate technology advances and keep pace with other developers of cardiovascular therapies and services. In addition, the medical devices industry has been consolidating and as a result, transactions with customers are larger, more complex and tend to involve more long-term contracts. The enhanced purchasing power of these larger Edwards Lifesciences customers may also increase downward pressure on product pricing. Competitive market forces may also adversely affect the prices at which Edwards Lifesciences sells its products.
Many existing and potential customers for Edwards Lifesciences' products have combined to form group purchasing organizations (GPOs). GPOs negotiate pricing arrangements with medical supply manufacturers and distributors and these negotiated prices are made available to a GPO's affiliated hospitals. If Edwards Lifesciences is not one of the providers selected by a GPO, Edwards Lifesciences may be precluded from making sales to members of a GPO for several years. Even if Edwards Lifesciences is one of the selected providers, Edwards Lifesciences may be at a disadvantage relative to other selected providers that are able to offer volume discounts based on purchases of a broader range of medical equipment and supplies. Further, Edwards Lifesciences may be required to commit to pricing that has a material adverse effect on sales and profit margins, the business, financial condition, and results of operations of Edwards Lifesciences.
Edwards Lifesciences and its customers are subject to various governmental regulations, and Edwards Lifesciences may incur significant expenses to comply with these regulations and develop its products to be compatible with these regulations.
The medical devices manufactured and marketed by Edwards Lifesciences are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities. The process of obtaining regulatory approvals to market a medical device, particularly from the FDA and certain foreign governmental authorities, can be costly and time consuming, and approvals might not be granted for future products on a timely basis, if at all. Delays in receipt of, or failure to obtain, approvals for future products could result in delayed realization of product revenues or in substantial additional costs which could have material adverse effects on Edwards Lifesciences' business or results of operations. In addition, there can be no assurance that Edwards Lifesciences will be or will continue to be in compliance with applicable FDA and other material regulatory requirements. If the FDA were to conclude that Edwards Lifesciences was not in compliance with applicable laws or regulations, it could institute proceedings to detain or seize Edwards Lifesciences' products, issue a recall, impose operating restrictions, enjoin future violations and assess civil penalties against Edwards Lifesciences, its officers or its employees and could recommend criminal prosecution to the Department of Justice. Moreover, the FDA could proceed to ban, or request recall, repair, replacement or refund of the cost of, any device or product manufactured or distributed by Edwards Lifesciences. Furthermore, both the FDA and foreign government regulators have become increasingly stringent, and Edwards Lifesciences may be subject to more rigorous regulation by governmental authorities in the future.
If third-party payors decline to reimburse Edwards Lifesciences customers for Edwards Lifesciences products or reduce reimbursement levels, Edwards Lifesciences' ability to profitably sell its products will be harmed.
Edwards Lifesciences sells its products and services to hospitals, doctors and other health care providers, all of which receive reimbursement for the health care services provided to their patients from third-party payors, such as government programs (both domestic and international), private insurance plans and managed care programs. These third-party payors may deny reimbursement if they determine that a device used in a procedure was not used in accordance with cost-effective treatment methods, as determined by such third-party payor, or was used for an unapproved indication. Third-party payors may also decline to reimburse for experimental procedures and devices. Many of Edwards Lifesciences' existing and future products are cost-effective because they are intended to reduce overall health care costs over a long period of time. Edwards Lifesciences cannot be certain whether these third- party payors will recognize these cost savings or will merely focus on the lower initial costs associated with competing therapies. If Edwards Lifesciences' products are not considered cost-effective by third-party payors, Edwards Lifesciences' customers may not be reimbursed for Edwards Lifesciences' products.
In addition, third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services. There can be no assurance that levels of reimbursement, if any, will not be decreased in the future, or that future legislation, regulation or reimbursement policies of third-party payors will not otherwise adversely affect the demand for and price levels of Edwards Lifesciences' products. In Japan, Edwards Lifesciences' customers are reimbursed for Edwards Lifesciences products under a government-operated insurance system. Under this system, the Japanese government annually reviews the reimbursement levels for products. If the Japanese government decides to reduce reimbursement levels for Edwards Lifesciences' products, Edwards Lifesciences' product pricing may be adversely affected.
Risks Related to Edwards Lifesciences' Separation from Baxter
The distribution may become a taxable event as a result of subsequent actions or events undertaken by Edwards Lifesciences.
Although the distribution is expected to be free from United States federal income tax as of the distribution date, it could be rendered taxable as a result of subsequent actions or events. Edwards Lifesciences has agreed not to undertake specified actions and has agreed that under particular circumstances it will indemnify Baxter for taxes, liabilities and associated expenses incurred as a result of any such actions or events. For more information, see "Edwards Lifesciences' Relationship With Baxter After the Distribution-- Reorganization Agreement."
After Edwards Lifesciences' separation from Baxter, Edwards Lifesciences may experience increased costs resulting from decreased purchasing power, which could decrease its profitability overall.
Prior to Edwards Lifesciences' separation from Baxter, Edwards Lifesciences was able to take advantage of Baxter's size and purchasing power in procuring goods, services and technology, such as computer software licenses. As a separate, stand-alone entity, Edwards Lifesciences may be unable to obtain goods, services and technology at prices and on terms as favorable as those it obtained prior to the distribution.
Edwards Lifesciences' new name is not yet recognized as a brand in the marketplace, and as a result its product sales could suffer.
The loss of the "Baxter" brand name may hinder Edwards Lifesciences' ability to establish new relationships. In addition, Edwards Lifesciences' current customers, suppliers and partners may react negatively to the separation from Baxter. In connection with Edwards Lifesciences' separation from Baxter, Edwards Lifesciences will change the brand name and some associated trademarks and trade names under which Edwards Lifesciences conducts its business. This transition to a new name will occur rapidly in certain geographic regions and over specified periods of time in other regions. Edwards Lifesciences believes that sales of its products have
benefited from the use of the "Baxter" brand name. In addition, although Edwards Lifesciences believes that it will have all necessary rights to use its new brand name, Edwards Lifesciences' rights to use the name may be challenged by others.
Edwards Lifesciences will need to fund its future capital requirements internally or obtain third-party financing.
Edwards Lifesciences believes that its capital requirements will vary greatly from quarter to quarter, depending on, among other things, capital expenditures, fluctuations in Edwards Lifesciences' operating results, financing activities and build-up of inventories. In the past, Edwards Lifesciences' working capital requirements have been met from internally- generated cash flow. Edwards Lifesciences believes that the planned initial debt financing, along with its future cash flow from operations, will be sufficient to satisfy its working capital, capital expenditure and research and development requirements for the foreseeable future. However, Edwards Lifesciences may be required or choose to obtain additional debt or equity financing in the future, especially for significant acquisitions. Future equity financings could be dilutive to the existing holders of Edwards Lifesciences' common stock. Future debt financings could involve restrictive covenants that limit Edwards Lifesciences' ability to take certain actions. To the extent Edwards Lifesciences must obtain financing, Edwards Lifesciences cannot guarantee that financing will be available on favorable terms and any financing may not be at interest rates as favorable as those historically enjoyed by Baxter. See "Edwards Lifesciences Management's Discussion and Analysis of Financial Condition and Results of Operations."
The transitional services being provided to Edwards Lifesciences by Baxter may be difficult to replace without operational problems.
Baxter has agreed to provide certain administrative services to Edwards Lifesciences in various countries around the world. These services include information systems and telecommunications, human resources, finance and accounting and other administrative services. In most cases, either party will have the right after 21 months to terminate these arrangements either in whole or in part. If these arrangements are terminated, Edwards Lifesciences will need to seek alternative providers of these services. Edwards Lifesciences may experience operational problems if it is not able to immediately replace these services or as Edwards Lifesciences transitions to another provider's systems. In addition, since the prices charged to Edwards Lifesciences under these arrangements are intended to approximate the costs of providing the services, the costs of obtaining services from third parties upon any termination could be in excess of the costs payable by Edwards Lifesciences to Baxter.
Risks Related to Ownership of Edwards Lifesciences' Common Stock
Edwards Lifesciences' common stock has no prior market, and Edwards Lifesciences cannot guarantee that Edwards Lifesciences' stock price will not decline after the distribution.
There has been no prior trading market for Edwards Lifesciences' stock and there can be no assurance as to the prices at which Edwards Lifesciences' stock will trade before or after the date of the distribution. Until the Edwards Lifesciences common stock is fully distributed and an orderly market develops, the prices at which the Edwards Lifesciences common stock trades may fluctuate significantly. Prices for the Edwards Lifesciences common stock will be determined in the trading markets and may be influenced by many factors, including:
. the depth and liquidity of the market for Edwards Lifesciences' stock;
. developments generally affecting the cardiovascular products market;
. investor perceptions of Edwards Lifesciences and its business;
. the financial results of Edwards Lifesciences;
. Edwards Lifesciences' dividend policy; and
. general economic and industry conditions.
For more information, see "The Distribution--Market for Edwards Lifesciences Common Stock."
In addition, the stock market, in general, frequently experiences extreme volatility that is often seemingly unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of Edwards Lifesciences common stock. In the past, securities class action litigation often has been instituted against companies following periods of volatility in the market price of their securities. Such litigation could result in substantial costs and a diversion of management's attention and resources.
Edwards Lifesciences' charter documents and Delaware law contain provisions that may discourage takeover attempts which could preclude Edwards Lifesciences' stockholders from receiving a change of control premium.
Edwards Lifesciences' certificate of incorporation and bylaws and Delaware law contain anti-takeover provisions that could have the effect of delaying or preventing changes in control that a stockholder may consider favorable. The provisions in Edwards Lifesciences' charter documents include the following:
. a classified board of directors with three-year staggered terms;
. the ability of Edwards Lifesciences' board of directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;
. stockholder action to be taken only at a special or regular meeting;
. advance notice procedures for nominating candidates to Edwards Lifesciences' board of directors or presenting matters at stockholder meetings;
. removal of directors only for cause; and
. super-majority voting requirements to amend the charter.
The foregoing could have the effect of delaying, deferring or preventing a change in control of Edwards Lifesciences, discouraging bids for Edwards Lifesciences' common stock at a premium over the market price or harming the market price of, and the voting and other rights of the holders of, Edwards Lifesciences' common stock. Edwards Lifesciences also is subject to Delaware laws that could have similar effects. One of these laws prohibits Edwards Lifesciences from engaging in a business combination with any significant stockholder for a period of three years from the date the person became a significant stockholder unless specific conditions are met. In addition, Edwards Lifesciences has adopted a stockholder rights plan. The preferred stock purchase rights under this plan, if triggered, would cause substantial dilution to any person or group who attempts to acquire a significant interest in Edwards Lifesciences without advance approval of Edwards Lifesciences' board of directors. For more information, see "Description of Edwards Lifesciences Capital Stock" and "Certain Anti-Takeover Effects of Provisions of Edwards Lifesciences' Certificate of Incorporation and Bylaws and of Delaware Law."
FORWARD-LOOKING STATEMENTS
This information statement and other materials filed or to be filed by Edwards Lifesciences with the SEC (as well as information included in oral statements or other written statements made, or to be made, by Edwards Lifesciences) contain, or will contain, disclosures which are "forward-looking statements." Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements address, among other things, strategic objectives and the anticipated effects of the distribution. These forward-looking statements are based on the current plans and expectations of the management of Edwards Lifesciences and are subject to a number of uncertainties and risks that could significantly affect current plans and expectations and the future financial condition and results of Edwards Lifesciences. These factors include, but are not limited to:
. the highly competitive nature of the health care industry;
. the efforts of insurers, health care providers and others to contain health care costs;
. possible changes in United States or foreign programs that may further limit reimbursements to health care providers and insurers;
. changes in federal, state or local regulation affecting the health care industry;
. the possible enactment of federal or state health care reform;
. the departure of key executive officers from Edwards Lifesciences;
. claims and legal actions relating to product liability;
. fluctuations in the market value of Edwards Lifesciences common stock;
. changes in accounting practices;
. changes in general economic conditions and foreign currency fluctuations;
. product demand and risks associated with industry acceptance;
. new product development and commercialization; and
. other risk factors described above.
As a consequence, current plans, anticipated actions and future financial conditions and results may materially differ from those expressed in any forward-looking statements made by or on behalf of Edwards Lifesciences. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this information statement.
EDWARDS LIFESCIENCES' BUSINESS
Overview
Edwards Lifesciences provides a comprehensive line of products and services to treat late-stage cardiovascular disease. Edwards Lifesciences is the worldwide leader in the design, development, manufacture and marketing of tissue heart valves and heart valve repair products. Many products manufactured by Edwards Lifesciences occupy leading positions around the world. Edwards Lifesciences' engineers and scientists work closely with many leading clinicians, which has allowed Edwards Lifesciences to develop and commercialize new products and to pioneer new treatment techniques. Edwards Lifesciences' sales are categorized in four main product areas: cardiac surgery, critical care, vascular and perfusion products and services. Edwards Lifesciences is headquartered in Irvine, California, and supplies its products and services to customers in more than 80 countries, both through direct sales and distributor relationships. In 1999, Edwards Lifesciences reported sales of $905 million. Edwards Lifesciences' products are manufactured in locations throughout the world, including Brazil, the Dominican Republic, Japan, The Netherlands, Puerto Rico, Switzerland and the United States.
Cardiovascular disease is the number one cause of death in the world, and is among the top three diseases in terms of health care spending in nearly every country in the world. We believe that around the world, more than $200 billion is spent each year for the treatment of cardiovascular disease. Cardiovascular disease is both progressive and pervasive; progressive, in that it tends to worsen over time, and pervasive because it often affects an individual's entire circulatory system. In its later stages, surgery frequently becomes the preferred treatment option. In 1999, approximately one million open heart surgeries were performed worldwide; of these, approximately 64% were coronary artery bypass graft (CABG) procedures, approximately 24% were heart valve replacement or repair procedures, and approximately 12% were related to the repair of congenital heart defects.
Edwards Lifesciences expects the following factors to contribute to the growth in the number of patients being treated for advanced late-stage cardiovascular disease:
. an increasing and aging population;
. the progressive nature of the disease; and
. continued economic development around the world, which permits more resources to be dedicated to treating chronic health conditions.
Patients undergoing surgical treatment for cardiovascular disease are likely to encounter a variety of Edwards Lifesciences' products and services. For example, an individual with a heart valve disorder may have a faulty valve re-shaped and repaired with an Edwards Lifesciences annuloplasty ring, or the surgeon may elect to remove the valve altogether and replace it with one of Edwards Lifesciences' handcrafted bioprosthetic heart valves, which can be made of bovine or porcine tissue. If a patient undergoes other types of open heart surgery, such as a CABG procedure, the functions of their heart and lungs may be managed through the use of disposable products and equipment offered in Edwards Lifesciences' perfusion products line. The perfusion process may be performed by a clinical perfusionist employed by Edwards Lifesciences' perfusion services, the largest organization of contract perfusionists in the world. A patient with end-stage cardiovascular disease who is awaiting a heart transplant may receive treatment from Edwards Lifesciences' mechanical cardiac assist system. If the circulatory problems are in the limbs rather than in the heart, the patients' procedure may involve some of Edwards Lifesciences' vascular products, which include various types of balloon-tipped catheters that are used to remove blood clots. Finally, virtually all high-risk patients in the operating room or cardiac-care unit are candidates for having their cardiac function monitored by Edwards Lifesciences' critical care products.
Business Strategy
Treatment of cardiovascular disease represents a significant, growing opportunity. Edwards Lifesciences' strategy is to develop, manufacture and market products that result in improved therapeutic outcomes for patients with late-stage cardiovascular disease. Edwards Lifesciences plans to aggressively expand its leading product
offerings and develop new products and therapies that improve the quality of patient care and reduce overall treatment costs. The key aspects of Edwards Lifesciences' strategy include:
Focus on Late-Stage Cardiovascular Disease Therapy. Cardiovascular disease is the leading cause of death in the world. Edwards Lifesciences has differentiated itself from other competitors by focusing primarily on late-stage treatments, which tend to rely more heavily on the use of devices and implantables and less on behavior-modification or drug therapy. Edwards Lifesciences believes there will be significant opportunity for growth as the aging global population increases and new technologies are developed.
Invest in Technological Innovation. Clinical performance historically has been the primary driver of commercial success for products used to treat cardiovascular disease. Edwards Lifesciences' product portfolio includes many leading technologies, and Edwards Lifesciences has been credited with pioneering a variety of new treatment techniques. Edwards Lifesciences plans to increase investment in research and development to enhance existing technologies and to develop and commercialize new products and therapies.
Expand Global Sales. Continuing economic development around the world and expanded global adoption of established medical procedures will provide attractive growth opportunities for Edwards Lifesciences. Edwards Lifesciences expects to broaden its sales, service and distribution channels globally to take advantage of these opportunities. Currently, an estimated 44% of Edwards Lifesciences' sales are derived from outside of the United States.
Evaluate Attractive Investment Opportunities. Edwards Lifesciences' operations generate significant operating cash flow, some of which Edwards Lifesciences plans to reinvest to accelerate growth and maximize long-term return to its stockholders. Edwards Lifesciences plans to evaluate investment opportunities based on the incremental return on invested capital in excess of Edwards Lifesciences' weighted average cost of capital. Edwards Lifesciences believes that its stockholders will recognize the greatest appreciation in value through investments which generate the highest incremental return.
Improve Existing Cost Structure. As an independent company, Edwards Lifesciences will be required to anticipate and react to market changes and eliminate inefficient processes and unnecessary costs. Edwards Lifesciences is already pursuing a number of opportunities to improve its existing cost structure and plans to continue identifying and implementing additional cost-savings initiatives.
Pursue Strategic Opportunities. The cardiovascular medical products industry is undergoing significant consolidation. Edwards Lifesciences plans to continue pursuing attractive opportunities to expand its product offerings and operations through acquisition. Possible acquisition candidates will have innovative technology positions or well-established product franchises. In addition, Edwards Lifesciences will continue to critically assess all of its product lines and offerings to ensure that each is contributing a return on invested capital that meets Edwards Lifesciences' short-term and long-term objectives.
Edwards Lifesciences' Product and Service Offerings
Edwards Lifesciences' comprehensive line of cardiovascular products and services are categorized into four main areas:
. Cardiac Surgery, encompassing heart valve therapy products, mechanical cardiac assist systems, and cannulae and cardioplegia;
. Critical Care, featuring cardiac monitoring systems and disposables used to evaluate cardiac output and measure blood pressure;
. Vascular, which includes products used in peripheral vascular surgery, surgical accessories, implantable grafts, and endovascular graft systems for treating aortic aneurysms; and
. Perfusion Products and Services, comprised of oxygenators and related disposables used during cardiopulmonary bypass, cardiopulmonary bypass hardware and perfusion services.
Cardiac Surgery
Heart Valve Therapy
Edwards Lifesciences is the world's leading manufacturer of tissue heart valves and valve repair products, which are used to replace or repair a patient's diseased or defective heart valve. Edwards Lifesciences operates two world-class manufacturing facilities in Irvine, California, and Horw, Switzerland, producing pericardial and porcine valves from biologically inert animal tissue sewn onto proprietary wireforms or stents.
An estimated 270,000 patients worldwide will have heart valve surgery in 2000. The procedure can extend lives and provide a higher quality of life than many patients have experienced in years. Depending on a patient's valve condition as well as other factors such as overall health, age and physical activity level, a surgeon may elect to replace a malfunctioning valve with a prosthetic heart valve made either of metal or tissue, or may perform a surgical repair of the heart valve, a procedure known as an annuloplasty.
Edwards Lifesciences expects the number of valve procedures to continue to grow due, in part, to an aging population; the high incidence in developing nations of rheumatic fever, which often leads to valvular problems; and the global growth of cardiovascular disease. Increased health care spending around the world, and improved diagnostic techniques that allow physicians to detect valve problems sooner, also are expected to contribute to an increasing number of heart valve procedures. Edwards Lifesciences has been a pioneer in the development and commercialization of tissue valves and repair products and is the world's leader in these areas.
Although patients of any age may require valve surgery, younger patients are more likely to receive a human-donated hemograft, mechanical valve or repair product, while older patients are more frequently candidates for tissue valves. Tissue valves can offer considerable lifestyle advantages over mechanical valves, in that mechanical valve patients must maintain a life-long regimen of blood-thinning medications. These medications increase the likelihood of bleeding and related complications, potentially impairing their physical activity levels or impacting other health conditions. Implantation rates for tissue valves are exceeding overall valve procedure growth, as surgeons continue to demonstrate their preference for tissue valves for certain types of patients.
The core of Edwards Lifesciences' tissue product line is the Carpentier- Edwards pericardial valve, made from the tissue that surrounds a cow's heart. The most widely prescribed tissue heart valve due to its proven durability and performance is the Carpentier-Edwards pericardial valve and is the only pericardial valve available in the United States.
While stented tissue valves represent the vast majority of tissue implants and the greatest opportunity for growth, some physicians may choose an unstented porcine tissue valve for select patients. Edwards Lifesciences introduced the Prima Plus, the first stentless valve, nearly a decade ago and continues to offer this product outside of the United States. Edwards Lifesciences also offers mechanical valves, including the Edwards MIRA bi- leaflet mechanical valve, and the Starr-Edwards silastic ball valve which Edwards Lifesciences launched in the 1960s as the first commercially available artificial heart valve. The Prima Plus valve is currently in clinical trials in the United States as part of the FDA approval process and Edwards Lifesciences is awaiting approval to commence clinical trials of the Edwards MIRA valve in the United States.
In addition to its replacement valves, Edwards Lifesciences is the worldwide leader in heart valve repair products. Through extended product development, training and promotion, Edwards Lifesciences has been a major force in the rapid acceptance of heart valve repair procedures, also known as annuloplasty, as an alternative to heart valve replacement. Through its Carpentier-Edwards and Cosgrove-Edwards annuloplasty systems, Edwards Lifesciences offers the broadest offering of heart valve repair products in the industry.
Mechanical Cardiac Assist
While tens of thousands of patients worldwide need heart transplants each year, only a fraction--about 4,000 individuals--actually receive a donor organ. The others must rely on continuous medication therapy or mechanical assist while they wait for an organ.
Edwards Lifesciences' Novacor Left Ventricular Assist System (LVAS) is a small, electromechanical pump that takes over the hearts pumping function for end-stage heart disease patients requiring a heart transplant. The device, which is implanted in the abdomen and surgically attached to the heart's left ventricle, is regulated by an external controller and battery pack that automatically responds to a patient's changing heartbeat and circulatory demands. The LVAS has been shown to add months, and in some cases years, to patients' lives while they await their donor hearts.
To date, more than 1,000 patients worldwide have received the Novacor LVAS. Approved in Europe since 1994 as both a "bridge" for patients awaiting transplant, as well as a permanent "alternative" to transplant, the Novacor LVAS was approved in 1998 by the FDA for the "bridge" application only. Although Edwards Lifesciences considers the achievement of the "bridge" approval in the United States to be a critical milestone toward gaining broader clinical acceptance of mechanical assist systems, it recognizes the significantly greater patient need in the "alternative" indication and continues to focus its resources on pursuing this opportunity.
Cannulae and Cardioplegia
Edwards Lifesciences, through the 1997 acquisition of Research Medical, Inc., is a leading manufacturer of cannulae and cardioplegia products used during cardiac surgery. Cannulae are various types of specialized tubing that are used in the surgical field to transport blood from the heart to the cardiopulmonary pump and oxygenator and to return the blood to the circulatory system. While there are standard configurations of cannulae, many are custom- designed to suit individual surgeons' requirements. Edwards Lifesciences offers more than 1,200 types of cannulae and accessories to facilitate the perfusion process.
Edwards Lifesciences also offers cardioplegia products that are used to preserve the heart muscle tissue during open heart surgery. Preservation is necessary because during traditional open heart surgery, the heart is disconnected from the body's circulatory system and unless some form of preservation or heart cooling is employed, the heart tissue will be damaged. Through its close work with clinicians, Edwards Lifesciences helped pioneer a new methodology for administering cardioplegia through a retrograde approach that delivers cardioplegia solutions to the coronary sinus and venous side of the heart, thereby bypassing the blocked coronary arteries.
Edwards Lifesciences' more recent developments include a line of cannulae to facilitate vacuum-assisted venous drainage during perfusion, and dispersion aortic cannulae, which are used to reduce the pressure of blood flow returning to the body in the wall of the aorta. Edwards Lifesciences also has introduced a number of products to facilitate coronary artery bypass surgery when it is performed on a beating heart. Included among these products is the AnastaFlo coronary shunt, which is used to redirect blood away from the suturing site, and the VisuFlo humidifying blower, which keeps the surgical site dry and optimizes the surgeon's visual field during a procedure.
Critical Care
Edwards Lifesciences is also a world leader in hemodynamic monitoring systems that are used to measure a patient's heart function in surgical and intensive care settings. Hemodynamic monitoring enables a clinician to balance the oxygen supply and demand of a critically ill patient. Failure to appropriately manage a patient's hemodynamic needs can cause organ injury, organ failure, or death. Edwards Lifesciences' systems provide important added clinical value by serving as a diagnostic tool that prompts clinicians to act when a patient's hemodynamic balance becomes disrupted.
In addition, hemodynamic monitoring plays an important role in assuring that the heart function of millions of patients who have pre-existing cardiovascular conditions or other critical illnesses is optimized before they undergo a surgical procedure. The vast majority of high-risk patients undergoing open heart, major vascular, major abdominal, neurological, and orthopedic procedures are candidates for Edwards Lifesciences' bedside monitoring technologies, which are often deployed before, during, and after surgery.
Edwards Lifesciences is credited with pioneering the practice of hemodynamic monitoring with the launch of the original Swan-Ganz catheter in the 1970s. Today, we believe that Edwards Lifesciences' extensive line of monitoring catheters and bedside patient monitoring equipment continue to be considered the standard in critical
care medicine. Edwards Lifesciences has played a major role in evolving critical care monitoring technologies, selling more than 20 million catheters and monitors worldwide, with new generations of products performing increasingly sophisticated functions.
Edwards Lifesciences also is a global leader in the broader field of disposable pressure monitoring devices and has introduced a line of innovative products enabling closed-loop arterial blood sampling to protect both patients and clinicians from the risk of infection.
Recently Edwards Lifesciences initiated the European launch of Vantex, the first anti-microbial central venous catheter, manufactured from a patented, antimicrobial material. Central venous catheters are the primary route for fluid and medication delivery to patients undergoing major surgical procedures and/or intensive care. Bloodstream infections related to central venous catheters have increased significantly over the past 10 years, and addressing this life-threatening and costly problem is another example of Edwards Lifesciences' leadership in critical care.
Edwards Lifesciences recognizes that assessing a patient's physiological balance and minimizing the risk of infection will remain fundamental requirements for successful treatment of critically ill patients. Edwards Lifesciences will continue to leverage its strength in this area and explore further opportunities in the diagnostics and therapeutic delivery areas.
Vascular
The pervasive nature of cardiovascular disease means that the conditions that occur inside of the heart are often duplicated elsewhere in a patient's body. Outside of the heart, the network of veins and arteries are collectively referred to as the body's vascular system. Atherosclerotic disease is one common circulatory condition which involves the thickening of blood-carrying vessels and the formation of circulation-restricting plaque, clots, and other substances, and often occurs concurrently in the vascular system as well as in the heart. When the abdomen, arms or legs are impacted, the diagnosis is usually peripheral vascular disease (PVD), which occurs in millions of patients worldwide, and in very advanced cases, may lead to amputation of patients' limbs.
Edwards Lifesciences manufactures and sells a variety of products used to treat PVD, including a line of balloon-tipped, catheter-based products, as well as surgical clips and inserts, angioscopy equipment, and artificial implantable grafts. Edwards Lifesciences' Fogarty line of embolectomy catheters has been an industry standard for removing blood clots from peripheral blood vessels for more than 30 years.
Edwards Lifesciences is also working on a number of new innovative technologies to treat PVD. For example, Edwards Lifesciences' Side Branch Occlusion system was launched in 1998 to help surgeons restore circulation in the legs. By working within the saphenous veins, the system eliminates the traditional incision along the entire length of the leg and the extensive complications usually associated with this procedure.
Another significant area of interest and investment has been the development of endovascular grafts. Edwards Lifesciences has developed the Lifepath AAA System to treat potentially life-threatening abdominal aortic aneurysms (AAA) with an endovascular approach. An abdominal aortic aneurysm can form in the aorta, the body's main circulatory channel, when a portion of the aortic wall becomes weakened and begins bulging outward. Often, the aneurysm grows until it poses a life-threatening risk of rupturing. The Lifepath AAA System treats abdominal aortic aneurysm by inserting an endovascular graft which replaces the wall of the aorta in the damaged area. By accessing and repairing the aneurysm from within the aorta, rather than making a major incision that exposes most of the body's internal organs, the endovascular procedure is less traumatic and invasive than standard aortic repair surgery. The Lifepath AAA is approved for commercial sale in Europe and Australia. It remains in clinical trials in the United States, with an anticipated commercial approval within the next two years.
Perfusion Products and Services
During the majority of open heart surgical procedures, a patient's heart is stopped, and the body's blood flow and oxygenation needs are managed through a series of pumps, tubing and filters attached to a
cardiopulmonary bypass machine. After the surgery is completed, the heart is revived after the normal blood flow through the heart and lung is restored. The practice of bypassing the heart and lungs externally during surgery is known as extracorporeal circulation.
Edwards Lifesciences develops, manufactures and markets a diverse line of disposable products used during extracorporeal circulation, including oxygenators, blood containers, filters and related devices. Many of the disposable products in Edwards Lifesciences' perfusion product line are coated with Edwards Lifesciences' patented Duraflo heparin treatment, which has been shown to improve the compatibility of medical devices used in cardiopulmonary bypass procedures with a patient's blood.
Edwards Lifesciences recently expanded its offering of perfusion products to include hardware with the acquisition of the COBE Century Heart Lung Machine business, one of the most popular heart-lung machine systems for cardiopulmonary bypass. Edwards Lifesciences also recently acquired and now offers the Metaplus Blood Pump System, a next-generation cardiopulmonary bypass circuit.
Although Edwards Lifesciences had been manufacturing and distributing perfusion products for years, it did not become active in the service side of the perfusion business until 1996, when it merged two previously acquired contract perfusion service companies, PSICOR, Inc. and SETA, Inc., into one company operating as an indirect, wholly owned subsidiary of Edwards Lifesciences. Through this subsidiary, coupled with the addition of several smaller regional perfusion service providers in the United States and Europe, Edwards Lifesciences now owns or operates the world's largest practice of contract perfusionists, employing more than 400 clinical perfusionists who perform an aggregate of more than 50,000 perfusion cases for open heart surgery per year in the United States. In all but one state, Edwards Lifesciences' perfusion services allow hospitals to purchase perfusion supplies and capital equipment as well as contract for highly trained personnel who perform perfusion during open heart and transplant surgeries, blood salvage, and intra-aortic balloon pumping procedures.
Competition
The medical devices industry is highly competitive. Edwards Lifesciences competes with many companies ranging from small start-up enterprises to companies that are larger and more established than Edwards Lifesciences with access to significant financial resources. Furthermore, rapid product development and technological change characterize the market in which Edwards Lifesciences competes. The present or future products of Edwards Lifesciences could be rendered obsolete or uneconomical by technological advances by one or more of Edwards Lifesciences' present or future competitors or by other therapies, including drug therapies. Edwards Lifesciences must continue to develop and acquire new products and technologies to remain competitive in the cardiovascular medical devices industry.
Edwards Lifesciences believes that it competes primarily on the basis of product reliability and performance, product features that enhance patient benefit, customer and sales support, and cost-effectiveness.
The cardiovascular segment of the medical device industry is dynamic and currently undergoing significant change due to cost-of-care considerations, regulatory reform, industry and customer consolidation, and evolving patient needs. The ability to provide cost-effective products and services that improve clinical outcomes is becoming increasingly important for medical device manufacturers.
Edwards Lifesciences' products and services face substantial competition from a number of companies. In cardiac surgery, the primary competitors include St. Jude Medical, Inc., Medtronic, Inc., and Sulzer Medica, Ltd. In critical care, Edwards Lifesciences' principal competitors include Abbott Laboratories Inc. and Arrow International, Inc., as well as a number of smaller companies. In vascular, Edwards Lifesciences' primary competitors include W.L. Gore and Associates, Inc. and Applied Medical Resources Corporation. In perfusion products, Edwards Lifesciences' major competitors include Medtronic, Inc., Sorin Biomedica Ltd. and Terumo Corporation. In addition, while Edwards Lifesciences is also the leading contract supplier of perfusion services in the United States, there are many small regional contract service providers who compete with Edwards Lifesciences for contracts in those hospitals that outsource perfusion services.
Sales and Marketing
Edwards Lifesciences has a number of broad product lines which require a sales and marketing strategy that is tailored to its customers in order to deliver high quality, cost-effective products and services to all of its customers worldwide. We believe that Edwards Lifesciences' portfolio includes some of the most respected product brands in cardiovascular devices today, including Carpentier-Edwards, Cosgrove-Edwards, Duraflo, Fogarty, Starr- Edwards and Swan-Ganz. Because of the diverse global needs of the population that Edwards Lifesciences serves, Edwards Lifesciences' distribution system includes a direct sales force and independent distributors. In 1999, approximately 12% of Edwards Lifesciences' net sales were from sales to Allegiance Corporation, which serves as a distributor of Edwards Lifesciences products in the United States. The Allegiance distribution agreement extends until December 31, 2000 and provides for distribution of Edwards Lifesciences' products by Allegiance on a generally non-exclusive basis for a percentage of the price paid to Edwards Lifesciences by Allegiance for the products. Allegiance distributes Edwards Lifesciences products to a variety of customers, including hospitals, surgical centers and other health care institutions. Edwards Lifesciences is not dependent on any single end-user customer and no single end-user customer accounted for more than 10% of Edwards Lifesciences' net sales in 1999.
Sales personnel work closely with the primary decision makers who purchase Edwards Lifesciences' products, whether they are physicians, material managers, nurses, biomedical staff, hospital administrators or purchasing managers. Additionally, Edwards Lifesciences' sales force actively pursues approval of Edwards Lifesciences as a qualified supplier for hospital group purchasing organizations that negotiate contracts with suppliers of medical products. Edwards Lifesciences already has contracts with a number of national buying groups and is working with a growing number of regional buying groups that are emerging in response to cost containment pressures and health care reform in the United States.
United States
In the United States, Edwards Lifesciences sells substantially all of its products through its direct sales force. Substantially all of its direct sales force consists of employees of Edwards Lifesciences. In 1999, 56% of Edwards Lifesciences' sales were derived from sales to customers in the United States.
International
In 1999, 44% of Edwards Lifesciences' sales were derived internationally through its direct sales force and independent distributors. Edwards Lifesciences sells its products in more than 80 countries. Major international countries in which Edwards Lifesciences' products are sold include: Australia, Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, Spain and the United Kingdom. The sales and marketing approach in international geographies varies depending on each country's size and state of development. See "Edwards Lifesciences' Relationship with Baxter After the Distribution--Distribution Agreements."
Raw Materials and Manufacturing
Edwards Lifesciences uses a diverse and broad range of raw and organic materials in the design, development and manufacture of its products. Edwards Lifesciences purchases certain of the materials and components used in manufacturing its products from external suppliers. In addition, Edwards Lifesciences purchases certain supplies from single sources for reasons of quality assurance, sole source availability, cost effectiveness or constraints resulting from regulatory requirements. Edwards Lifesciences works closely with its suppliers to assure continuity of supply while maintaining high quality and reliability. Edwards Lifesciences uses a diverse and broad range of raw and organic materials in the design, development and manufacture of its products. Edwards Lifesciences purchases certain of the materials and components used in manufacturing its products from external suppliers. In addition, Edwards Lifesciences purchases certain supplies from single sources for reasons of quality assurance, cost effectiveness or constraints resulting from regulatory requirements. Edwards Lifesciences works closely with its suppliers to assure continuity of supply while maintaining high quality and reliability. Alternative supplier options are generally considered and identified, although Edwards Lifesciences does not typically pursue regulatory qualification of alternative sources due to the strength of its existing supplier relationships and the time and expense associated with the regulatory process. Although a
change in suppliers could require significant effort or investment by Edwards Lifesciences in circumstances where the items supplied are integral to the performance of Edwards Lifesciences' products or incorporate unique technology, management does not believe that the loss of any existing supply contract would have a material adverse effect on the Company.
Edwards Lifesciences' non-implantable products are manufactured from man- made raw materials including resins, chemicals, electronics and metal. Most of Edwards Lifesciences' heart valve therapy products are manufactured from natural tissues harvested from animal tissue, as well as man-made materials. In an effort to reduce potential product liability exposure, certain suppliers have announced that they intend to limit or terminate sales of certain materials and parts to companies that manufacture implantable medical devices.
In 1998, Congress enacted the Biomaterials Access Assurance Act to help ensure a continued supply of raw materials and component parts essential to the manufacture of medical devices by allowing for rapid dismissal of claims against suppliers in product liability lawsuits if certain facts and circumstances exist. This law has not yet had a material impact, and it is not possible to assess the long-term impact it will have, on the continued availability of raw materials. The inability to develop satisfactory alternatives, if required, or a reduction or interruption in supply or a significant increase in the price of materials or components could have a material adverse effect on Edwards Lifesciences' business.
Quality Assurance
Edwards Lifesciences is committed to providing high quality products to its customers. To meet this commitment, Edwards Lifesciences has implemented modern quality systems and concepts throughout the organization. The quality system starts with the initial product specification and continues through the design of the product, component specification processes and the manufacturing, sales and servicing of the product. The quality system is designed to build in quality and to utilize continuous improvement concepts throughout the product life.
Edwards Lifesciences' operations are certified under the applicable international quality systems standards, such as ISO 9001, ISO 9002, EN46001 and EN46002. ISO 9001 and 9002 require, among other items, an implemented quality system that applies to component quality, supplier control and manufacturing operations. In addition, ISO 9001 and EN46001 require an implemented quality system that applies to product design. These certifications can be obtained only after a complete audit of a company's quality system has been conducted by an independent outside auditor. These certifications require that Edwards Lifesciences' facilities undergo periodic reexamination.
Research and Development
Edwards Lifesciences is engaged in ongoing research and development to introduce clinically advanced new products, to enhance the effectiveness, ease of use, safety and reliability of its existing products and to expand the applications of its products as appropriate. Edwards Lifesciences is dedicated to developing novel technologies that will furnish health care providers with a more complete line of products to treat late-stage cardiovascular disease.
Edwards Lifesciences' research and development activities are carried out primarily in facilities located in the United States. Edwards Lifesciences' research and development staff is focused on product design and development, quality, clinical research and regulatory compliance. To pursue primary research efforts, Edwards Lifesciences has developed alliances with several leading research institutions and universities. Edwards Lifesciences also works with leading clinicians around the world in conducting scientific studies on Edwards Lifesciences' existing and developing products. These studies include clinical trials which provide data for use in regulatory submissions and post-market approval studies involving applications of Edwards Lifesciences' products.
Edwards Lifesciences spent $55 million on research and development (6% of total sales) in 1999, approximately $56 million (7% of total sales) in 1998 and approximately $53 million (6% of total sales) in 1997. These funds have been used primarily to develop new products and to improve and expand the applications for existing products.
Proprietary Technology
Patents and other proprietary rights are important to the success of Edwards Lifesciences' business. Edwards Lifesciences also relies upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain its competitive position. All employees and consultants that have access to confidential and proprietary information, or that are employed to perform duties or services that are likely to result in inventions, are required to sign either our standard employment agreement or our standard consulting agreement. In addition, all third parties that are given access to confidential and proprietary information are required to sign our standard outgoing confidentiality agreement. Edwards Lifesciences reviews third-party patents and patent applications in an effort to develop an effective patent strategy, identify licensing opportunities and monitor the patent claims of others.
The medical device industry has been engaged in substantial litigation in recent years regarding patent and other intellectual property rights in the medical device industry. From time to time, Edwards Lifesciences may be subject to claims of, and legal actions alleging, infringement of the patent rights of others. While Edwards Lifesciences has taken numerous steps to continuously review the patents of others with regard to its products, there can be no assurance that all pertinent third-party patents have been identified. An adverse outcome with respect to any one or more of these claims or actions could have a material adverse effect on Edwards Lifesciences.
Edwards Lifesciences owns approximately 294 issued U.S. patents and 110 pending U.S. patent applications, 444 issued foreign patents and 300 pending patent applications, and has licensed approximately 59 issued U.S. patents, 31 pending U.S. patent applications, 168 issued foreign patents and 75 pending foreign patent applications, that relate to aspects of the technology incorporated in many of Edwards Lifesciences' products. This proprietary protection often affords Edwards Lifesciences the opportunity to enhance its position in the marketplace by precluding its competitors from using or otherwise exploiting Edwards Lifesciences' technology.
Most of Edwards Lifesciences' products are protected in some way by issued patents and/or pending patent applications. Edwards Lifesciences has several key patents and pending patent applications in the United States, Europe, Australia, Japan and Canada on improvements to the Carpentier-Edwards pericardial valve which enhance and extend the original patent coverage on such product. Although the original pericardial patent will be expiring in 2002 in most countries, because of design improvements made since the original filing, management does not expect this to have a significant effect on its business. Edwards Lifesciences also has many important United States and foreign patents and pending patent applications related to mitral valve repair and, in particular, patent coverage on the Cosgrove-Edwards annuloplasty system and the Carpentier-Edwards physio annuloplasty ring. The AAA Lifepath System for endovascular repair of aortic abdominal aneurysms is an important technology which is protected by at least ten issued or allowed United States patents and foreign applications pending in Europe, Canada, Japan and Australia. Edwards Lifesciences also has numerous key United States and foreign patents and patent applications that cover catheters, systems and methods for measuring and monitoring continuous cardiac output (CCO) and vascular access products, including combinations of introducers and central venous catheters. Many of the CCO and vascular access patents were issued only recently and are expected to protect Edwards Lifesciences' intellectual property rights in such technologies for the next thirteen to seventeen years. Edwards Lifesciences' Duraflo treatment technology plays a significant role in the success of its perfusion products and services. The earliest Duraflo patents held in the United States and Japan do not expire until 2005-2006, and Edwards Lifesciences is in the process of developing further improvements. In addition, Edwards Lifesciences has purchased and licensed extensive United States and foreign patents and patent applications in the angiogenesis field.
Although some of Edwards Lifesciences' patents are due to expire within the next five years, Edwards Lifesciences' patent strategy is to file improvement patent applications and, in some cases, additional patent applications covering new aspects or modifications of the affected products, or line extensions of these products. As a result, the duration of the patents covering Edwards Lifesciences' products can extend up to twenty years from the date of filing of the patent application. Edwards Lifesciences management does not believe that the
expiration of any one or more of its patents that are due to expire in the next five years will cause a material adverse effect on the sales of Edwards Lifesciences' products. In addition, Edwards Lifesciences is a party to several license agreements with unrelated third parties pursuant to which it has obtained, for varying terms, the exclusive or non-exclusive rights to certain patents held by such third parties in consideration for cross- licensing rights or royalty payments. Edwards Lifesciences has also granted various rights in its own patents to others under license agreements. There can be no assurance that pending patent applications will result in issued patents. Competitors may challenge the validity and enforceability of, or circumvent these patents issued to or licensed by Edwards Lifesciences. Such patents may also be found to be not infringed and thus insufficiently broad to provide Edwards Lifesciences with a competitive advantage.
Edwards Lifesciences actively monitors the products of its competitors for possible infringement of Edwards Lifesciences' owned and/or licensed patents. Historically, litigation has been necessary to enforce certain patent rights held by Edwards Lifesciences and Edwards Lifesciences plans to continue to defend and prosecute its rights with respect to such patents. However, Edwards Lifesciences' efforts in this regard may not be successful. In addition, patent litigation could result in substantial cost to and diversion of effort by Edwards Lifesciences. Edwards Lifesciences also relies upon trade secrets for protection of its confidential and proprietary information. Others may independently develop substantially equivalent proprietary information and techniques, and third parties may otherwise gain access to Edwards Lifesciences' trade secrets.
It is Edwards Lifesciences' policy to require certain of its employees, consultants and other parties to execute confidentiality and invention assignment agreements upon the commencement of employment, consulting or other relationships with Edwards Lifesciences. However, these agreements may not provide meaningful protection against, or adequate remedies for, the unauthorized use or disclosure of Edwards Lifesciences' trade secrets.
Edwards Lifesciences has the following registered trademarks and non- registered trademarks that are referred to in this information statement:
Registered trademarks:
Novacor(R)
AnastaFlo(R) Duraflo(R) Starr-Edwards(R)
Bentley(R) Edwards MIRA(R) Swan-Ganz(R)
Carpentier-Edwards(R) Fogarty(R) Vantex(R)
Cosgrove-Edwards(R) Lifepath AAA(R) System
Non-registered trademarks:
Century(TM) Metaplus(TM)
Edwards Prima Plus(TM) Side Branch Occlusion(TM)
Edwards Prima(TM) Plus System
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Many of these trademarks have also been registered for use in certain foreign countries where registration is available and Edwards Lifesciences has determined it is commercially advantageous to do so.
Government Regulation and Other Matters
Regulatory Approvals
In the United States, the FDA, among other government agencies, is responsible for regulating the introduction of new medical devices. The FDA regulates laboratory and manufacturing practices, labeling and record keeping for medical devices, and review of required manufacturers' reports of adverse experience to identify potential problems with marketed medical devices. Many of the devices that Edwards Lifesciences develops and markets are in a category for which the FDA has implemented stringent clinical investigation and pre-market approval requirements. The process of obtaining FDA approval to market a product can be resource-intensive, lengthy and costly. FDA review may involve substantial delays that adversely affect the marketing and sale of Edwards Lifesciences' products. Any delay or acceleration experienced by Edwards Lifesciences in obtaining regulatory approvals to conduct clinical trials or in obtaining required market clearances (especially with respect to significant products in the regulatory process that have been discussed in public announcements) may affect Edwards Lifesciences' operations or the market's expectations for the timing of such events and, consequently, the market price for Edwards Lifesciences' common stock.
The FDA has the authority to halt the distribution of certain medical devices, detain or seize adulterated or misbranded medical devices, or order the repair, replacement or refund of the costs of such devices. The FDA may also require notification of health professionals and others with regard to medical devices that present unreasonable risks of substantial harm to the public health. The FDA may enjoin and restrain certain violations of the Food, Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to medical devices, or initiate action for criminal prosecution of such violations. Moreover, the FDA administers certain controls over the export of medical devices from the United States and the importation of devices into the United States.
Medical device laws are also in effect in the other countries in which Edwards Lifesciences does business outside of the United States. These range from comprehensive device approval requirements for some or all of Edwards Lifesciences' medical device products to requests for product data or certifications. The number and scope of these requirements are increasing.
Health Care Initiatives
Government and private sector initiatives to limit the growth of health care costs, including price regulation and competitive pricing, are continuing in many countries where Edwards Lifesciences does business, including the United States. As a result of these changes, the marketplace has placed increased emphasis on the delivery of more cost-effective medical therapies. Although Edwards Lifesciences believes it is well positioned to respond to changes resulting from this worldwide trend toward cost containment, proposed legislation and/or changes in the marketplace could have an adverse impact on future operating results.
Diagnostic-related groups' reimbursement schedules regulate the amount the United States government, through the United States Health Care Financing Administration, will reimburse hospitals and doctors for the in-patient care of persons covered by Medicare. In response to rising Medicare and Medicaid costs, several legislative proposals in the United States have been advanced which would restrict future funding increases for these programs. While Edwards Lifesciences has been unaware of significant domestic price resistance directly as a result of the reimbursement policies of diagnostic-related groups, changes in these reimbursement levels and processes could have an adverse effect on Edwards Lifesciences' domestic pricing flexibility.
In keeping with the increased emphasis on cost-effectiveness in health care delivery, the current trend among hospitals and other customers of medical device manufacturers is to consolidate into larger purchasing groups to enhance purchasing power. The medical device industry has also experienced some consolidation, partly in order to offer a broader range of products to large purchasers. As a result, transactions with customers are larger, more complex and tend to involve more long-term contracts than in the past. The enhanced purchasing power of these larger customers may also increase the pressure on product pricing, although management is unable to estimate the potential impact at this time.
Legal Matters
Edwards Lifesciences operates in an industry susceptible to significant product liability claims. In recent years, there has been an increased public interest in product liability claims for implanted or other medical devices. These claims may be brought by individuals seeking relief for themselves or, increasingly, by groups seeking to represent a class. In addition, product liability claims may be asserted against Edwards Lifesciences in the future arising out of events not known to management at the present time. Management believes that Edwards Lifesciences' risk management practices, including insurance coverage, are adequate to protect against potential product and professional liability losses.
In 1996, government authorities in Germany began an investigation into certain business and accounting practices by heart valve manufacturers. As a part of this investigation, documents were seized from Edwards Lifesciences and certain other manufacturers. Based upon currently available information, Edwards Lifesciences does not expect these investigations to have a materially adverse impact on the company's financial position, results of operations or liquidity.
Edwards Lifesciences is also subject to various environmental laws and regulations both within and outside of the United States. The operations of Edwards Lifesciences, like those of other medical device companies,
involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes. While it is difficult to quantify the potential impact of compliance with environmental protection laws, management believes that such compliance will not have a material impact on Edwards Lifesciences' financial position, results of operations or liquidity.
Properties
The locations and uses of the major properties of Edwards Lifesciences are as follows:
North America
Irvine, California (1) Headquarters, Research and Development,
Regulatory and Clinical Affairs and
Manufacturing
Oakland, California (2) Administrative, Research and Development,
Regulatory and Clinical Affairs and
Manufacturing
San Diego, California (2) Administrative, Service Center and Warehouse
Memphis, Tennessee (1) Distribution and Logistics
Midvale, Utah (1) Administrative, Research and Development,
Regulatory Affairs and Manufacturing
Haina, the Dominican Republic (2) Manufacturing
Anasco, Puerto Rico (2) Manufacturing
Europe
Uden, The Netherlands (1) Warehouse, Distribution, Manufacturing and
Offices
Horw, Switzerland (2) Manufacturing
Lausanne, Switzerland (2) European Headquarters
South America
Sao Paulo, Brazil (2) Manufacturing
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The leases for the leased properties set forth above generally expire within eight years. The Oakland, California lease expires in 2002; the San Diego, California lease expires in 2006; the Dominican Republic lease expires in 2006; the Puerto Rico lease expires in 2008; and the Horw, Switzerland lease expires in 2001. The Lausanne, Switzerland and Sao Paulo, Brazil leases will be entered into prior to the distribution date. The leased properties range in size from approximately 19,000 square feet to 46,000 square feet with rents ranging from approximately $1.00 to $4.00 per square foot. These leases generally are not renewable. Each of the existing leases listed above will require the consent of the landlord for Baxter to assign or sublease the property to Edwards Lifesciences.
Employees
Edwards Lifesciences employs over 5,000 employees worldwide, the majority of whom are located at the company's headquarters in Irvine, California, and at its manufacturing facility in Puerto Rico. Other major concentrations of employees are located in Europe and Brazil. Edwards Lifesciences emphasizes competitive compensation, benefits, equity participation and work environment policies in its efforts to attract and retain qualified personnel. None of Edwards Lifesciences' North American employees is represented by a labor union. In various countries outside of North America, there are a limited number of employees who have relationships with works councils or trade unions. Edwards Lifesciences considers its relations with its employees to be good.
EDWARDS LIFESCIENCES' RELATIONSHIP WITH BAXTER AFTER THE DISTRIBUTION
General
Immediately prior to the distribution, Edwards Lifesciences will be a wholly-owned subsidiary of Baxter. After the distribution, Baxter will not have any ownership interest in the common stock of Edwards Lifesciences, which will be an independent, publicly traded company and no Baxter directors will also be Edwards Lifesciences directors.
Immediately prior to the distribution, Baxter and Edwards Lifesciences will enter into certain agreements to define their ongoing relationship after the distribution and to allocate tax, employee benefits and certain other liabilities and obligations arising from periods prior to the distribution date. These agreements are being entered into between Baxter and Edwards Lifesciences while Edwards Lifesciences is still a wholly owned subsidiary of Baxter, and certain terms of these agreements are not the same as would have been obtained through negotiations with an unaffiliated third party.
Reorganization Agreement
Baxter and Edwards Lifesciences will enter into an Agreement and Plan of Reorganization (the reorganization agreement) providing for, among other things, the principal corporate transactions required to effect the separation of the CardioVascular business from the remaining Baxter businesses and the distribution, and certain other agreements governing the relationship between Baxter and Edwards Lifesciences after the distribution. The following description is intended as a summary of all material terms of the reorganization agreement. We encourage you to read, in its entirety, the reorganization agreement, which is included as an exhibit to the registration statement of which this information statement is a part.
Pursuant to the reorganization agreement, Baxter will transfer to Edwards Lifesciences substantially all of the assets, and Edwards Lifesciences will assume substantially all of the corresponding liabilities, of the CardioVascular business (other than cash, third party distribution relationships and inventory where Baxter continues to serve as the distributor for Edwards Lifesciences, and assets and liabilities related to Japan). See "Edwards Lifesciences' Business." The assets of the CardioVascular business will be transferred to Edwards Lifesciences on an "as is, where is" basis and no representations or warranties will be made by Baxter with respect to the assets other than certain product-related indemnities.
Subject to certain exceptions, the reorganization agreement will provide for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of the CardioVascular business with Edwards Lifesciences and financial responsibility for the obligations and liabilities of Baxter's retained businesses and its other subsidiaries with Baxter. Specifically, Edwards Lifesciences has agreed to assume liability for, and to indemnify Baxter against, any and all liabilities associated with the CardioVascular business, including any litigation, proceedings or claims relating to the products and operations of the transferred business whether or not the underlying basis for such litigation, proceeding or claim arose prior to or after the distribution date. See "Edwards Lifesciences' Business-- Government Regulation and Other Matters." Baxter has agreed to indemnify Edwards Lifesciences against any and all liabilities associated with Baxter's retained businesses and its other subsidiaries. Other than the obligations contained in the reorganization agreement and the other agreements entered into in connection with the distribution, the reorganization agreement provides that Baxter and Edwards Lifesciences will release each other from all claims existing at the time of the distribution.
The reorganization agreement will also provide that Edwards Lifesciences will assume and indemnify Baxter for all environmental liabilities that arise from or are attributable to the operations of the CardioVascular business regardless of when these liabilities arose. This includes, but is not limited to, off-site waste disposal liabilities, except that Baxter will retain the liabilities relating to two off-site disposal locations. In addition, Baxter has agreed to indemnify Edwards Lifesciences against any and all environmental liabilities associated with the retained Baxter businesses and its other subsidiaries.
The reorganization provides that Baxter will receive from Edwards Lifesciences and its subsidiaries an aggregate of approximately $305 million through either payments for assets transferred to Edwards Lifesciences or its subsidiaries or through repayment of intercompany debt existing immediately prior to the distribution date.
The reorganization agreement will also provide, among other things, that, in order to avoid potentially adverse tax consequences relating to the distribution, for a period of two years after the distribution, Edwards Lifesciences will not:
(1) cease to engage in an active trade or business within the meaning of the Internal Revenue Code of 1986, as amended;
(2) issue or redeem any share of stock of Edwards Lifesciences, except for certain issuances and redemptions for the benefit of Edwards Lifesciences' employees, or to effect acquisitions by Edwards Lifesciences in the ordinary course of business, or in connection with the issuance of any convertible debt by Edwards Lifesciences, or in accordance with the requirements for permitted purchases of Edwards Lifesciences common stock as set forth in Section 4.05(1)(b) of Revenue Procedure 96-30 issued by the IRS; or
(3) liquidate or merge with any other corporation;
unless, with respect to (1), (2) or (3) above, either (a) an opinion is obtained from counsel to Baxter, or (b) a ruling is obtained from the IRS, in either case to the effect that such act or event will not adversely affect the federal income tax consequences of the distribution to Baxter or its stockholders who receive Edwards Lifesciences stock. Edwards Lifesciences believes that these limitations will not significantly constrain its activities or its ability to respond to unanticipated developments. See "The Distribution--Important Federal Income Tax Consequences."
The reorganization agreement will also provide that if, as a result of certain transactions occurring after the distribution date involving either the stock or assets of either Edwards Lifesciences or any of its subsidiaries, or any combination thereof, the distribution fails to qualify as tax-free under the provisions of Section 355 of the United States tax code, Edwards Lifesciences will indemnify Baxter for all taxes, liabilities and associated expenses, including penalties and interest, incurred as a result of such failure of the distribution to qualify under Section 355 of the tax code. The reorganization agreement will further provide that if the distribution fails to qualify as tax-free under the provisions of Section 355 of the tax code, other than as a result of a transaction occurring after the distribution date involving either the stock or assets of Edwards Lifesciences or any of its subsidiaries, or any combination of stock or assets, then Edwards Lifesciences will not be liable for those taxes, liabilities or expenses. See "The Distribution--Important Federal Income Tax Consequences."
The reorganization agreement will also provide for cross-licensing of certain intellectual property transferred to Edwards Lifesciences or retained by Baxter. Specifically, to the extent that research and development related to Baxter's CardioVascular business resulted in the creation of intellectual property, Baxter will transfer this intellectual property, subject to certain exceptions, to Edwards Lifesciences as part of the assets being transferred under the reorganization agreement. Edwards Lifesciences will grant to Baxter a license for such intellectual property to the extent that Baxter is using this intellectual property immediately prior to the distribution or to the extent that Baxter requires the use of this intellectual property for product extensions developed and manufactured within the three-year period following the distribution. Conversely, Baxter will grant to Edwards Lifesciences a license to use certain intellectual property retained by Baxter to the extent that such intellectual property is being used by Baxter's CardioVascular business immediately prior to the distribution or to the extent that Edwards Lifesciences requires the use of this intellectual property for product extensions developed and manufactured within the three-year period following the distribution.
The reorganization agreement will also provide for the allocation of benefits between Baxter and Edwards Lifesciences under existing insurance policies after the distribution date for claims made or occurrences prior to the distribution date. The reorganization agreement also sets forth procedures for the administration of insured claims. In addition, the reorganization agreement provides that Baxter will use its reasonable efforts to maintain directors' and officers' insurance at substantially the level of Baxter's current directors' and officers' insurance policy for a period of six years with respect to the directors and officers of Baxter who will become directors and officers of Edwards Lifesciences as of the distribution date for acts relating to periods prior to the distribution date.
The reorganization agreement will provide that prior to the distribution date the certificate of incorporation and bylaws of Edwards Lifesciences will be substantially in the forms attached as exhibits to the registration statement of which this information statement is a part and that as of the distribution date the directors of Edwards Lifesciences will be the persons named in "Edwards Lifesciences Management--Board of Directors."
The reorganization agreement will also provide that each of Baxter and Edwards Lifesciences will be granted access to certain records and information in the possession of the other. In addition, the reorganization
agreement requires Baxter and Edwards Lifesciences to retain for a period of ten years following the distribution the information in its possession relating to the other. After the ten year period, Baxter and Edwards Lifesciences must give prior notice to the other of their intention to dispose of such information.
The reorganization agreement will also address the treatment of employee benefit matters and other compensation arrangements for certain former and current Edwards Lifesciences employees and their beneficiaries and dependents (we refer to these persons collectively as the Edwards Lifesciences Participants). These provisions of the reorganization agreement contemplate that Edwards Lifesciences will establish certain profit sharing, retirement savings and welfare plans effective on the distribution date. The reorganization agreement will provide that the account balances (including outstanding loans) of all Edwards Lifesciences Participants in the Baxter International Inc. and Subsidiaries Incentive Investment Plan, and the plan assets related to these liabilities, will be transferred to Edwards Lifesciences' new retirement savings plan. The reorganization agreement also contemplates that Edwards Lifesciences Participants in the Baxter International Inc. and Subsidiaries Pension Plan will be fully vested in their accrued benefits as of the distribution date under such plan and that Baxter will remain responsible for the liabilities associated with such benefits. The reorganization agreement will also provide that Baxter will remain responsible for all liabilities associated with accruals as of the distribution date for Edwards Lifesciences Participants under the Baxter International Inc. and Subsidiaries Supplemental Pension Plan and that Edwards Lifesciences will become responsible for providing all benefits accrued as of the distribution date for Edwards Lifesciences Participants under the Baxter International Inc. and Subsidiaries Deferred Compensation Plan. Moreover, the reorganization agreement will also generally provide that, after the distribution date, Edwards Lifesciences will assume certain liabilities for benefits under any welfare and retirement plans related to Edwards Lifesciences Participants, other than certain claims incurred on or before the distribution date.
The reorganization agreement also provides that as of the distribution date, neither Baxter nor Edwards Lifesciences will have entered into, and within the first six months following the distribution date, neither Baxter nor Edwards Lifesciences will enter into any agreements, understandings, arrangements or substantial negotiations that would result, individually or collectively, in a change of ownership of 50% or more of either within the meaning of Section 355(e) of the tax code.
The reorganization agreement provides that disputes arising under the reorganization agreement or the other agreements entered into to implement the distribution will be resolved through good faith negotiation between senior management or, if still unresolved, through binding arbitration.
Finally, the reorganization agreement will provide that the distribution will not be made until specified conditions are satisfied or waived by the Baxter board of directors in its sole discretion. Even if all of the conditions are satisfied, the reorganization agreement may be terminated and the distribution abandoned by the Baxter board of directors, in its sole discretion, without the approval of the Baxter stockholders, at any time prior to the distribution date. See "The Distribution--Distribution Conditions and Termination."
Tax Sharing Agreement
Baxter and Edwards Lifesciences will enter into a tax sharing agreement that will:
1. allocate responsibility for federal, state and foreign tax liabilities of the Edwards Lifesciences business attributable to periods including, or ending on or before, the distribution date;
2. allocate liability for transfer taxes arising under the distribution or related transactions;
3. provide for the allocation of tax attributes in accordance with United States Treasury Regulations or other applicable authorities;
4. allocate responsibility for tax return filings, records retention, the payment of tax liabilities and the administration of tax audits which relate to the Edwards Lifesciences business;
5. allocate responsibility for property considered abandoned under state law as of the distribution date; and
6. allocate deductions related to stock acquired under employee compensation plans prior to, or as a result of, the distribution.
Distribution Agreements
Baxter and Edwards Lifesciences will enter into a number of distribution agreements, to be effective as of the distribution date, pursuant to which Baxter will serve as the distributor of Edwards Lifesciences products in Argentina, Bolivia, Paraguay, Uruguay, Australia, Greece, Ireland, New Zealand, China, Russia, Colombia and in certain Nordic, Central European, Middle Eastern and African countries. In addition, in most European countries, as well as in India, Baxter will provide distribution services that will be limited to various physical distribution services. In the other countries, Baxter will provide more extensive sales and marketing assistance and will take legal title to products before resale to the end customers. Baxter may also contract with third-party distributors for the distribution of Edwards Lifesciences products. In addition, Baxter may provide certain sales and marketing support services to Edwards Lifesciences in other parts of the world.
The initial term of the distribution agreements is less than two years. Generally, the distribution agreements automatically renew for an additional one-year period unless one of the parties provides the other with a notice of non-renewal at least four months prior to the expiration of the initial term. In the event of a change in control of one of the parties to the distribution agreements, the other party to the agreement will have the right, subject to certain notice periods and other restrictions, to terminate such agreement prior to its normal expiration.
Under certain distribution agreements, Edwards Lifesciences is required within the applicable territories to distribute all covered products through Baxter, subject to certain exceptions. In addition, in certain jurisdictions, Baxter may not market, promote or solicit orders for any product that competes with any covered product. Baxter may, however, take orders for, stock and sell competing products in response to customer requests.
The compensation received by Baxter under the distribution agreements generally will approximate or be based upon Baxter's direct and indirect costs of distribution, plus, in the case of those territories where Baxter performs more than mere physical distribution services, a margin comparable to the amounts reflected in the pro forma financial statement of Edwards Lifesciences contained elsewhere in this document. See "Edwards Lifesciences' Unaudited Pro Forma Financial Data" on page 39.
Services and Other Agreements
Baxter and Edwards Lifesciences will enter into several services agreements, to be effective as of the distribution date, pursuant to which Baxter will provide to Edwards Lifesciences certain administrative services that may be necessary for Edwards Lifesciences to conduct its business. Baxter will provide a variety of services to Edwards Lifesciences, including information systems and telecommunications, human resources, finance and accounting and other administrative services. The initial term of the services agreements is less than two years. Generally, the services agreements automatically renew for an additional one-year period unless one of the parties provides the other with a notice of non-renewal at least four months prior to the expiration of the initial term. Under certain circumstances involving a change in control, Edwards Lifesciences and Baxter may terminate the agreements within a shorter timeframe. The prices at which Baxter will provide these services generally will be equal to or based on the actual cost of rendering these services.
The CardioVascular business in Japan, including certain manufacturing operations, will not be transferred to Edwards Lifesciences at the time of the distribution due to Japanese regulatory requirements and business culture considerations. It will be operated pursuant to a joint venture under which a Japanese subsidiary of Baxter will retain ownership of the business assets, but a subsidiary of Edwards Lifesciences will hold a 90% profit interest. Edwards Lifesciences will have an option to purchase the Japanese business assets, which option may be exercised no earlier than 28 months following the distribution date and no later than 60 months following the distribution date. The exercise price of such option is approximately $245 million. Of the $245 million exercise price, approximately $215 million would be obtained by Edwards Lifesciences upon termination of the joint venture from the return of its fair value in the joint venture at inception. In addition, Edwards Lifesciences and Baxter would have the opportunity to terminate the joint venture in the event of the occurrence of certain change of control events with respect to the other and in certain other circumstances. In the event of any such termination, the option becomes immediately exercisable. Edwards Lifesciences will also enter into a fifteen-year distribution agreement with Baxter granting Baxter the exclusive right to distribute Edwards Lifesciences products in Japan. Amounts received by Baxter under this distribution agreement will be included as part of the joint venture. Edwards Lifesciences will include the results of the Japanese operations using the equity method of accounting.
THE DISTRIBUTION
Background and Reasons for the Distribution
Baxter is creating an independent, publicly traded company for its CardioVascular business because it believes that the combined value of two separate companies will be greater than the value of Baxter as a whole today. Edwards Lifesciences expects that the distribution will allow it to compete more effectively in the intensely competitive and rapidly consolidating cardiovascular medical device industry. Following the distribution, Baxter will have the ability to invest more resources in its remaining core businesses, which it expects will further enhance its ability to bring new products to market and to expand in global markets.
Improved Ability to Compete in Cardiovascular Medical Device Industry
Edwards Lifesciences will benefit from focusing on treating late-stage cardiovascular disease. While Edwards Lifesciences has developed leadership positions in several niche segments of the cardiovascular medical device industry, its competitive position is being challenged by larger and more focused "pure play" competitors. As size, breadth and access to emerging technologies become more important in the rapidly evolving and consolidating cardiovascular medical device industry, Edwards Lifesciences intends to accelerate its rate of innovation, and make a significant contribution to its product development pipeline. Edwards Lifesciences expects this strategy to ultimately lead to the commercialization of more and improved treatment options for Edwards Lifesciences' customers and their patients. In addition, Edwards Lifesciences expects that it will increase funding of internal development and be more aggressive in pursuing acquisition and strategic alliance opportunities. The distribution will provide Edwards Lifesciences with a publicly traded equity security that can be used to provide it with more flexibility in making acquisitions.
Attraction and Retention of Key Employees
Edwards Lifesciences' management believes that having a publicly traded equity security will create a highly effective incentive tool for motivating senior management and attracting and retaining talented employees at all levels of the company. Following the distribution, the stock price of Edwards Lifesciences will be heavily influenced by the operational and financial performance of Edwards Lifesciences. This direct link between performance and stock price appreciation should create an effective incentive system and should serve to enhance the levels of dedication, commitment and productivity of the management and employees of Edwards Lifesciences. The impact of this form of incentive system on Edwards Lifesciences' performance will grow as management and employee ownership in the company increases through the use of stock options and participation in stock incentive programs.
Capital Structure and Dividend Policy Optimization
The distribution will provide both Baxter and Edwards Lifesciences the opportunity to create capital structures and adopt dividend policies that best reflect the cash flow, investment requirements, competitive landscape, stockholder expectations and corporate strategy and business objectives of each company. By appropriately tailoring the capital structures of Baxter and Edwards Lifesciences, each should be better able to pursue their strategic objectives while achieving the lowest overall cost of capital consistent with the risk profiles and competitive factors inherent in each business.
Manner of Effecting the Distribution
The general terms and conditions relating to the distribution are set forth in the reorganization agreement between Baxter and Edwards Lifesciences. See "Edwards Lifesciences' Relationship With Baxter After The Distribution-- Reorganization Agreement."
On the distribution date, Baxter will effect the distribution by delivering all of the outstanding shares of Edwards Lifesciences common stock to First Chicago Trust Company of New York, a division of EquiServe, as
distribution agent, for distribution to the holders of record of Baxter common
stock at the close of business on the record date. The distribution will be
made on the basis of one share of Edwards Lifesciences common stock for every
[five] shares of Baxter common stock.
The actual number of shares of Edwards Lifesciences common stock that will be distributed will depend on the number of shares of Baxter common stock outstanding on the record date. The shares of Edwards Lifesciences common stock will be validly issued, fully paid and nonassessable, and the holders of such shares will not be entitled to preemptive rights. See "Description of Edwards Lifesciences Capital Stock." It is expected that certificates representing shares of Edwards Lifesciences common stock will be mailed to Baxter stockholders on or about March [ ], 2000.
Certificates or script representing fractional shares of Edwards Lifesciences common stock will not be issued to Baxter stockholders as part of the distribution. Instead, each holder of Baxter common stock who would otherwise be entitled to receive a fractional share will receive cash for those fractional interests less applicable taxes. The distribution agent will, on or after the distribution date, aggregate and sell all those fractional interests on the open market at then market prices and distribute the aggregate proceeds ratably to Baxter stockholders otherwise entitled to those fractional interests. Baxter will pay all brokers' fees and commissions in connection with the sale of fractional interests. See "The Distribution-- Important Federal Income Tax Consequences" for a discussion of the United States federal income tax treatment of proceeds from fractional share interests.
Accounting Treatment of Plan of Reorganization
The distribution will be accounted for on a historical cost basis and no gain or loss will be recorded.
Important Federal Income Tax Consequences
The distribution is conditioned on Baxter receiving a ruling from the IRS substantially to the effect that, among other things, the distribution should qualify as a tax-free spin-off to Baxter and to Baxter's United States stockholders under the tax-free spin-off provisions (Section 355) of the Internal Revenue Code of 1986, as amended. Baxter's board of directors may waive this condition.
The ruling is based on current provisions of the Internal Revenue Code, existing regulations under the tax code and current administrative rulings and court decisions, all of which are subject to change. We have not attempted to comment on all federal income tax consequences of the distribution that may be relevant to particular holders, including holders that are subject to special tax rules such as dealers in securities, foreign persons, mutual funds, insurance companies, tax-exempt entities, stockholders who acquire their Edwards Lifesciences common stock pursuant to the exercise of employee stock options or otherwise as compensation and holders who do not hold their Baxter common stock as capital assets. We urge holders of Baxter common stock to consult their own tax advisors regarding the federal income tax consequences of the distribution in light of their personal circumstances and the consequences under applicable state, local and foreign tax laws.
Provided that the distribution qualifies as a tax-free distribution under the tax-free spin-off provisions of the tax code, as expected based on the IRS ruling, a Baxter stockholder will not recognize any income, gain or loss as a result of the distribution, except, as described below, in connection with fractional share proceeds from the deemed receipt and sale of any Edwards Lifesciences common stock:
1. A Baxter stockholder's aggregate tax basis for Baxter common stock on which Edwards Lifesciences common stock is distributed and the Edwards Lifesciences common stock received by such stockholder in the distribution (including any fractional shares of Edwards Lifesciences common stock to which such stockholder may be entitled) will be the same as the basis of Baxter common stock held by such stockholder immediately prior to the distribution;
2. A Baxter stockholder's aggregate tax basis will be allocated between his or her Baxter common stock and Edwards Lifesciences common stock received in the distribution (including any fractional shares of Edwards Lifesciences common stock deemed received) in proportion to the fair market value of both the Baxter common stock and Edwards Lifesciences common stock on the distribution date;
3. A Baxter stockholder's holding period for the Edwards Lifesciences common stock received in the distribution (including any fractional shares of Edwards Lifesciences common stock to which such stockholder may be entitled) will include the holding period of the Baxter common stock on which the distribution is made, provided that such Baxter common stock is held as a capital asset by such stockholder on the distribution date;
4. A Baxter stockholder who receives fractional share proceeds as a result of the sale of shares of Edwards Lifesciences common stock by the distribution agent will be treated as if such fractional share had been received by the stockholder as part of the distribution and then sold by such stockholder. Accordingly, such stockholder will recognize gain or loss equal to the difference between the cash so received and the portion of the tax basis in Edwards Lifesciences common stock that is allocable to such fractional share. Such gain or loss will be capital gain or loss, provided that such fractional share was held by such stockholder as a capital asset at the time of the distribution; and
5. Baxter will not recognize any gain or loss on the distribution.
If for any reason the distribution does not qualify as a tax-free spin-off under Section 355 of the tax code, Baxter would be required to recognize gain equal to the excess of the fair market value of the Edwards Lifesciences common stock distributed to its stockholders over Baxter's basis in the Edwards Lifesciences common stock. Baxter has agreed to indemnify Edwards Lifesciences for any tax liability imposed on Edwards Lifesciences or any of its subsidiaries as a result of the distribution being determined to be a taxable transaction other than due to any act or failure to act of Edwards Lifesciences or any of its subsidiaries. In addition, if the distribution fails to qualify as a tax-free spin-off under Section 355 of the tax code, each Baxter stockholder would be generally treated as if such stockholder had received a taxable dividend in an amount equal to the fair market value of the Edwards Lifesciences common stock received.
Current United States Treasury Regulations require each Baxter stockholder who receives Edwards Lifesciences common stock pursuant to the distribution to attach to his or her federal income tax return for the year in which the distribution occurs a detailed statement setting forth data as may be appropriate in order to show the applicability under Section 355 of the tax code to the distribution. Baxter will provide the appropriate information to each stockholder of record as of the record date.
Under the tax code, a holder of Baxter common stock may be subject, under certain circumstances, to backup withholding at a rate of 31% with respect to the amount of cash, if any, received as a result of the sale of fractional share interests unless the holder provides proof of an applicable exemption or correct taxpayer identification number, and otherwise complies with applicable requirements of the backup withholding rules. Any amounts withheld under the backup withholding rules are not additional tax and may be refunded or credited against the holder's federal income tax liability, provided the required information is furnished to the IRS.
Market for Edwards Lifesciences Common Stock
There is no existing market for Edwards Lifesciences common stock. Edwards Lifesciences is seeking to list its common stock on the NYSE. If the shares are accepted for listing, a "when-issued" trading market for Edwards Lifesciences common stock is expected to develop on or shortly before the record date. The term "when-issued" means that shares can be traded prior to the time certificates are actually available or issued. We cannot predict the trading prices for Edwards Lifesciences common stock before or after the distribution date. Until the common stock is fully distributed and an orderly market develops, the trading prices for Edwards Lifesciences' common stock may fluctuate. Prices for Edwards Lifesciences common stock will be determined in the trading markets and may be influenced by many factors, including:
. the depth and liquidity of the market for Edwards Lifesciences common stock;
. developments generally affecting Edwards Lifesciences' business;
. the impact of the factors referred to in "Risk Factors" beginning on page 7;
. investor perceptions of Edwards Lifesciences and its business;
. the financial results of Edwards Lifesciences;
. the dividend policy of Edwards Lifesciences; and
. general economic and market conditions.
We anticipate that Edwards Lifesciences common stock will be traded on the NYSE under the symbol "EW." The transfer agent and registrar for the Edwards Lifesciences common stock will be First Chicago Trust Company, a division of EquiServe.
As of February 1, 1999, Baxter had 60,830 stockholders of record. Except for those stockholders who would be entitled to receive less than one share of Edwards Lifesciences common stock, and assuming that each stockholder is a stockholder of record on the record date, each stockholder will become a stockholder of record of Edwards Lifesciences. For certain information regarding options and other equity-based awards involving Edwards Lifesciences common stock which may become outstanding after the distribution, see "Edwards Lifesciences Executive Compensation." Shares of Edwards Lifesciences common stock distributed to Baxter stockholders in the distribution will be freely transferable under the Securities Act of 1933, except for shares of Edwards Lifesciences common stock received by persons who may be deemed to be affiliates of Edwards Lifesciences. Persons who may be deemed to be affiliates of Edwards Lifesciences after the distribution generally include individuals or entities that control, are controlled by or are under common control with Edwards Lifesciences and may include certain officers and directors, or principal stockholders, of Edwards Lifesciences. After Edwards Lifesciences becomes a publicly traded company, securities held by persons who are its affiliates will be subject to resale restrictions under the Securities Act. Affiliates of Edwards Lifesciences will be permitted to sell shares of the entity of which such persons are affiliates only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.
Dividend Policy
Edwards Lifesciences has no current plans to pay dividends following the distribution. Dividends will be paid on Edwards Lifesciences common stock only if declared by the Edwards Lifesciences board of directors in its sole discretion following the distribution. The payment and level of cash dividends, if any, will be based upon a number of factors, including the operating results, cash flow and financial requirements of Edwards Lifesciences. The actual amount and timing of dividends, if any, will depend on Edwards Lifesciences' financial condition, results of operations, business prospects, capital requirements and any other matters as Edwards Lifesciences' board of directors may deem relevant.
Distribution Conditions and Termination
We expect that the distribution will be effective on the distribution date, March [ ], 2000, provided that, among other things:
1. the SEC has declared effective the registration statement on Form 10 under the Exchange Act, as amended, filed by Edwards Lifesciences and no stop order relating to the registration statement is in effect;
2. Baxter and Edwards Lifesciences have received all necessary permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the distribution or these permits, registrations and consents have become effective;
3. Baxter and Edwards Lifesciences have received the favorable tax ruling from the IRS and the ruling has not been revoked or modified in any material respect;
4. the NYSE has approved the Edwards Lifesciences common stock for listing on the NYSE, subject to official notice of issuance;
5. Baxter has completed the transfers of assets and liabilities to Edwards Lifesciences required to constitute Edwards Lifesciences as described in this information statement;
6. no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution or any of the transactions related thereto (including the transfers of assets and liabilities contemplated by the reorganization agreement) is in effect; and
7. Baxter's board of directors has received opinions of its financial advisors regarding the fairness of the distribution to stockholders of Baxter.
The fulfillment of the foregoing conditions will not create any obligation on the part of Baxter to effect the distribution, and Baxter's board of directors has reserved the right to amend, modify or abandon the distribution and the related transactions at any time prior to the distribution date. Baxter's board of directors may also waive any of these conditions.
Opinions of Financial Advisors
Baxter has engaged Credit Suisse First Boston Corporation (CSFB) and J.P. Morgan Securities Inc. (J.P. Morgan) as financial advisors in connection with the distribution. We expect that the Baxter board of directors will rely, in part, upon the receipt of the opinions described below in deciding to formally declare the distribution dividend. The receipt of these opinions is a condition to the distribution. Baxter's board of directors or a duly authorized committee may waive this condition.
We expect CSFB and J.P. Morgan to deliver to the Baxter board of directors their written opinions, each dated March [ ], 2000, regarding the fairness of the distribution to stockholders of Baxter.
Each of CSFB and J.P. Morgan will receive customary fees, including reimbursement of expenses, for its services as financial advisor related to the distribution, a portion of which is contingent upon the consummation of the distribution. Baxter also has agreed to indemnify each of CSFB and J.P. Morgan against certain liabilities and expenses in connection with its services as financial advisor.
CSFB and J.P. Morgan and their respective affiliates have acted, and may in the future act, as underwriters for, and have participated as members of underwriting syndicates with respect to, offerings of Baxter securities. CSFB and J.P. Morgan have effected securities transactions for Baxter and performed financial advisory services in connection with certain acquisitions and dispositions by Baxter. CSFB and J.P. Morgan have received fees from Baxter in the past for these services and may receive such fees in the future. Each of CSFB and J.P. Morgan may in the future serve as an underwriter of Edwards Lifesciences securities.
SELECTED HISTORICAL FINANCIAL DATA OF EDWARDS LIFESCIENCES
The following table sets forth selected financial information with respect to Edwards Lifesciences. The information, relating to each of the years ended December 31, 1995 through 1999, has been derived from annual financial statements and related notes found elsewhere in this information statement. The information set forth below should be read in conjunction with "Edwards Lifesciences Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Combined Financial Statements" and related notes to the financial statements found elsewhere in this information statement. Historical per share data for net income and dividends have not been presented because Edwards Lifesciences was not incorporated until September 1999. Pro forma net income per share data is presented elsewhere in this information statement. See Note 3 to the "Combined Financial Statements" and "Edward Lifesciences' Management's Discussion and Analysis of Financial Condition and Results of Operations" for discussions of the effect of certain acquisitions on Edwards Lifesciences' revenues, expenses and financial position.
Selected Historical Financial Data
As of or for the years ended December
31,
--------------------------------------
1999(b) 1998(b) 1997(b) 1996 1995
------- ------- ------- ------ ------
(in millions)
Income Statement Data
Net sales........................... $ 905 $ 865 $ 879 $ 837 $ 730
Gross profit........................ $ 439 $ 399 $ 416 $ 395 $ 366
Net income(a)....................... $ 82 $ 62 $ (52) $ 87 $ 66
Balance Sheet Data
Total assets........................ $1,437 $1,483 $1,526 $1,473 $1,390
|
(b) These results present Edwards Lifesciences on a divisional basis as it has historically been operated as part of Baxter. Subsequent to the distribution, the Edwards Lifesciences' Japan operations will be presented on an equity basis as opposed to the consolidation method reflected in the historical results. As such, the results reflected here will not be comparable to the presentation subsequent to the distribution. See "Unaudited Pro Forma Financial Data."
EDWARDS LIFESCIENCES' UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined statement of income and unaudited pro forma combined balance sheet present the combined results of Edwards Lifesciences and its financial position, assuming that the transactions contemplated by the distribution had been completed as of January 1, 1999 for income statement purposes and as of December 31, 1999 for balance sheet purposes.
The unaudited pro forma information has been prepared utilizing the historical combined financial statements of Edwards Lifesciences. You should read this information in conjunction with the historical combined financial statements and related notes included on pages F-1 to F-18 of this information statement. We have included the unaudited pro forma financial data as required by the rules and regulations of the SEC and it is for comparative purposes only. The unaudited pro forma financial data does not purport to be indicative of the results of Edwards Lifesciences in the future or what the financial position of results of operations would have been had Edwards Lifesciences been a separate, stand-alone entity during the period shown.
Unaudited Pro Forma Combined Statement of Income
(in millions, except shares and per share information)
Year ended December 31, 1999
-------------------------------------------------
Pro Forma
Adjustments
to Reflect
Japan on an
Pro Forma Equity
Historical Adjustments Basis Pro Forma
---------- ----------- ----------- ------------
Net sales..................... $905 $-- $(96)(e) $ 809
Costs and expenses
Cost of goods sold.......... 460 3 (a) (37)(e) 426
Cost of goods sold--
transactions with Baxter... 6 -- -- 6
Marketing and administrative
expenses................... 189 25 (b) (43)(e) 171
Marketing and administrative
expenses--transactions with
Baxter..................... 44 -- -- 44
Research and development
expenses................... 41 -- (2)(e) 39
Research and development
expenses--transactions with
Baxter..................... 14 -- -- 14
Interest, net............... -- 29 (c) -- 29
Goodwill amortization....... 34 -- -- 34
Other expense (income)...... 4 -- (14)(e) (10)
---- ---- ---- ------------
Total costs and expenses...... 792 57 (96) 753
---- ---- ---- ------------
Income (loss) before income
taxes........................ 113 (57) -- 56
Income tax expense (benefit).. 31 (16)(d) -- 15
---- ---- ---- ------------
Net income (loss)............. $ 82 $(41) $-- $ 41
==== ==== ==== ============
Share information
Shares to be issued (f)..... [58,180,903]
============
Net income per share (f).... $ 0.70
============
|
Pro Forma Adjustments
(a) To reflect estimated incremental costs resulting from new or revised distribution agreements with Baxter in certain foreign locations subsequent to the distribution. While such distribution agreements are in the process of being finalized, based on an analysis of the current intercompany charges, it is anticipated that the draft revised agreements will result in increased costs to Edwards Lifesciences on a stand-alone basis.
(b) To reflect estimated incremental costs associated with being an independent public company, including costs associated with corporate administrative services such as accounting, tax, treasury, risk management, insurance, legal, stockholder relations and human resources. The company's historical combined financial statements include all costs incurred by the parent company on behalf of the company. However, there will be incremental and continuing costs directly attributable to the planned spin-off, as there will be a loss of certain synergies and benefits of economies of scale that existed while Edwards Lifesciences was part of Baxter. Management estimated such incremental costs utilizing the parent company's historical headcount and cost analysis, and the company's organizational chart, which has been finalized. Management also utilized knowledge and expertise obtained from executing similar spin- off transactions in the past, and knowledge of the approximate headcount and cost structures of the company's competitor companies. The following is a summary of the estimated incremental costs by significant function (in millions):
. Accounting, tax and legal........................................... $ 8
. Insurance and risk management....................................... 4
. Human resources..................................................... 7
. Treasury, stockholder relations and other costs..................... 6
---
Total............................................................. $25
===
|
(c) To reflect the estimated interest expense which would have been incurred by Edwards Lifesciences based on the incurrence of $520 million of debt at a weighted-average interest rate of 5.6%. The company's debt facilities are not yet finalized. The weighted-average interest rate was estimated by management using current market interest rates and was based on the assumed mix of debt balances for Edwards Lifesciences, by country, and the market- quoted LIBOR for the applicable currency coupled with the company's anticipated credit spread in each applicable country. An increase or decrease of 0.125 points in the weighted average interest rate would result in an increase or decrease in interest expense of approximately $1 million.
(d) To reflect the estimated tax impact at statutory rates, for pro forma adjustments (a) through (c), as well as the estimated impact of different tax rates available to Edwards Lifesciences as a stand-alone company. It is anticipated that Edwards Lifesciences will have different tax rates as a stand-alone company due to the different tax and legal structures it will have as a stand-alone company subsequent to spin-off date. Management does not expect the future effective tax rate to be significantly different from the 1999 pro forma effective tax rate.
(e) To reflect the Edwards Lifesciences Japanese operations on an equity basis.
See "Services and Other Agreements."
(f) Pro forma net income per share is computed as if the [58,180,903] common shares of Edwards Lifesciences, estimated to be issuable in the distribution, had been outstanding for the periods presented. Refer to footnote (b) and (c) on page 41 regarding the determination of the anticipated common shares outstanding.
Unaudited Pro Forma Combined Balance Sheet
(in millions, except shares and per share data)
December 31, 1999
-------------------------------------------
Pro Forma
Adjustments
to Reflect
Japan on an
Pro Forma Equity Pro
Historical Adjustments Basis Forma
---------- ----------- ----------- ------
Current assets
Accounts receivable, net of
allowances of $8 million at
December 31, 1999............... $ 133 -- (22)(d) $ 111
Other receivables................ 22 -- -- 22
Inventories...................... 182 -- (34)(d) 148
Short-term deferred income taxes. 9 -- -- 9
Prepaid expenses................. 10 -- -- 10
------ ----- ---- ------
Total current assets........... 356 -- (56) 300
------ ----- ---- ------
Property, plant and equipment
Property, plant and equipment.... 496 -- (58)(d) 438
Accumulated depreciation and
amortization.................... (270) -- 38 (d) (232)
------ ----- ---- ------
Net property, plant and
equipment..................... 226 -- (20) 206
------ ----- ---- ------
Other assets
Goodwill and other intangibles... 839 -- -- 839
Other............................ 16 -- (4)(d) 12
------ ----- ---- ------
Total other assets............. 855 -- (4) 851
------ ----- ---- ------
Total assets................. $1,437 -- (80) $1,357
====== ===== ==== ======
Current liabilities
Accounts payable and accrued
liabilities..................... $ 156 -- (19)(d) $ 137
------ ----- ---- ------
Total current liabilities...... 156 -- (19) 137
------ ----- ---- ------
Long-term debt and other noncurrent
liabilities....................... 57 $ 520 (a) (5)(d) 572
------ ----- ---- ------
Stockholders' equity
Retained earnings................ 418 (2)(c) (56)(d) 362
2 (b)
Investments by and advances from
Baxter International Inc........ 833 (520)(a) --
(313)(b) -- --
Common stock, $1 par value,
authorized [350,000,000] shares,
outstanding [58,180,903] shares. -- 58 (b) -- 58
Other equity..................... -- 253 (b) --
2 (c) -- 255
Accumulated other comprehensive
income (loss)................... (27) -- -- (27)
------ ----- ---- ------
Total stockholders' equity .... 1,224 (520) (56) 648
------ ----- ---- ------
Total liabilities and
stockholders' equity........ $1,437 $ -- $(80) $1,357
====== ===== ==== ======
|
Pro Forma Adjustments
(a) The "Investments by and advances from Baxter International Inc." account includes common stock, additional paid-in capital and net intercompany balances with Edwards Lifesciences which will be contributed at the time of the spin-off. Refer to Note 2 to the Combined Financial Statements for further information. Approximately $520 million of Baxter's existing debt will be indirectly assumed by Edwards Lifesciences through the issuance of new third-party debt. This adjustment represents an estimate based on available information. The company's debt agreements are in the process of being finalized. Management does not expect this adjustment to materially differ from the final amount.
(b) To reflect the anticipated distribution of [58,039,903] shares of common stock at $1.00 par value share (at an assumed distribution ratio of one share of Edwards Lifesciences common stock for every [five] shares of Baxter common stock held on the record date) and the elimination of Baxter's equity investment effected by the anticipated distribution of all outstanding shares of Edwards Lifesciences stock to Baxter stockholders. The anticipated total shares outstanding of [58,180,903] also reflects shares to be issued to hourly employees, as discussed in footnote (c) below.
(c) To reflect the anticipated initial contribution of principally common stock to hourly employees worldwide to be held in a special stock account under the Edwards Lifesciences Retirement Plan. See further discussion on pages 62 and 64.
(d) To reflect the Edwards Lifesciences Japanese operations on an equity basis. See "Services and Other Agreements."
EDWARDS LIFESCIENCES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents the factors that had a material effect on the results of operations of Edwards Lifesciences during the years ended December 31, 1999, 1998 and 1997. Also discussed is Edwards Lifesciences' financial position as of December 31, 1999 and 1998. You should read this discussion in conjunction with the historical and pro forma combined financial statements and related notes thereto included elsewhere in this information statement.
Overview
Edwards Lifesciences provides a comprehensive line of products and services to treat late-stage cardiovascular disease. Edwards Lifesciences is the world's leader, and has been a pioneer in the development and commercialization of tissue valves and repair products, used to replace or repair a patient's diseased or defective heart. Edwards Lifesciences' sales are categorized in four main product areas: cardiac surgery, critical care, vascular and perfusion products and services. See "Edwards Lifesciences' Product and Service Offerings" elsewhere in this information statement. In addition, Edwards Lifesciences also offers a diverse grouping of product lines comprised mostly of select distributed products that are sold in international markets, and miscellaneous pharmaceutical products. Edwards Lifesciences is headquartered in Irvine, California, and supplies its products and services to customers in more than 80 countries, both through direct sales and distributor relationships. Edwards Lifesciences' products are manufactured in locations throughout the world, including Brazil, the Dominican Republic, Japan, The Netherlands, Puerto Rico, Switzerland and the United States.
Edwards Lifesciences' cardiac surgery portfolio is comprised of products relating to heart-valve therapy, mechanical cardiac assist, and cannulae and cardioplegia products used during open-heart surgery. Edwards Lifesciences is the world's leader, and has been a pioneer in the development and commercialization of tissue valves and repair products, used to replace or repair a patient's diseased or defective heart valve. In the critical care area, Edwards Lifesciences is a world leader in hemodynamic monitoring systems that are used to measure a patient's heart function in surgical and intensive care settings. Edwards Lifesciences' vascular product lines include a line of balloon catheter-based products, surgical clips and inserts, angioscopy equipment and artificial implantable grafts, as well as an endovascular system that is used to treat less invasively life-threatening abdominal aortic aneurysms. In the perfusion products and services category, Edwards Lifesciences designs, develops, manufactures and markets a diverse line of disposable products used during cardiopulmonary bypass procedures, including oxygenators, blood containers, filters and related devices, as well as bypass equipment. Edwards Lifesciences is also the world's leading provider of perfusion services, employing more than 400 certified perfusionists who perform an aggregate of more than 50,000 perfusion cases for open heart surgery per year.
Cardiovascular disease is the leading cause of death in the world. Edwards Lifesciences believes that there is a continual and growing need for the treatment of cardiovascular disease primarily due to the aging population, the progressive nature of the disease and the continued economic development of countries around the world that allows for additional funds to be allocated for the treatment of chronic health conditions. Edwards Lifesciences' business strategy is to develop, manufacture and market products and services that result in improved therapeutic outcomes for patients with late-stage cardiovascular disease. Edwards Lifesciences plans to aggressively expand its leading product offerings and develop new products and therapies that improve the quality of patient care and reduce overall treatment costs.
The health-care marketplace continues to be competitive. There has been consolidation in Edwards Lifesciences' customer base and among its competitors, which has resulted in pricing and market share pressures. Edwards Lifesciences has experienced increases in its labor and material costs, which are primarily influenced by general inflationary trends. Competitive market conditions have minimized inflation's impact on the selling prices of Edwards Lifesciences' products and services. Management expects these trends to continue. Edwards Lifesciences will continue to manage these factors by capitalizing on its existing leading positions, developing
new products and services through further commitment to internal research and development activities, investing capital and human resources to upgrade and expand facilities, leveraging its cost structure and pursuing acquisitions and strategic alliances.
Results of Operations
Net Sales Trends
The following is a summary of domestic and international net sales:
Year ended
December 31,
------------------
1999 1998 1997
---- ---- ----
(Dollars in
millions)
United States......................................... $504 $508 $515
% increase/(decrease)............................. (1%) (1%)
International......................................... 401 357 364
% increase/(decrease)............................. 12% (2%)
---- ---- ----
Total net sales....................................... $905 $865 $879
% increase/(decrease)............................. 5% (2%)
==== ==== ====
|
Fluctuations in net sales were primarily due to increases in sales of cardiac surgery products offset by a decline in perfusion product sales and perfusion service revenues as well as fluctuations in foreign currency exchange rates. The fluctuations in foreign currency exchange rates were primarily related to the movement of the U.S. dollar against the Euro and the Japanese Yen. Excluding the effects of foreign currency exchange rate fluctuations, Edwards Lifesciences' net sales worldwide increased 2% in the year ended December 31, 1999 and increased 1% in the year ended December 31, 1998.
The impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on operating costs and expenses and Edwards Lifesciences' hedging activities. For more information, see "Currency Risk" below.
The following is a summary of net sales by product line:
Year ended
December 31,
------------------
1999 1998 1997
---- ---- ----
(Dollars in
millions)
Cardiac surgery....................................... 306 $273 $247
% increase/(decrease)............................. 12% 11%
Critical care......................................... 242 221 227
% increase/(decrease)............................. 10% (3%)
Vascular.............................................. 61 60 57
% increase/(decrease)............................. 2% 5%
Perfusion products and services....................... 244 269 289
% increase/(decrease)............................. (9%) (7%)
Other................................................. 52 42 59
% increase /(decrease)............................ 24% (29%)
--- ---- ----
Total net sales....................................... 905 $865 $879
% increase /(decrease)............................ 5% (2%)
=== ==== ====
|
Cardiac Surgery
Net sales of cardiac surgery products increased 12% in the year ended December 31, 1999 and increased 11% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, net sales of cardiac surgery products would have increased 11% in the year ended December 31, 1999 and 13% in the year ended December 31, 1998.
Increased demand for Edwards Lifesciences' heart-valve therapy products is the primary reason for the growth in sales for all periods presented. Sales growth in 1998 also benefited from a full year of sales related to the acquisition of Research Medical, Inc., in March 1997. Research Medical is a leading manufacturer of cannulae and cardioplegia products used during open- heart procedures. Edwards Lifesciences now offers more than 1,200 types of cannulae and accessories. Management expects that its heart-valve therapy products will continue to serve as the key driver of sales growth.
Critical Care
Net sales of critical care products increased 10% in the year ended December 31, 1999 and decreased 3% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, net sales of critical care products would have increased 6% in the year ended December 31, 1999 and 2% in the year ended December 31, 1998.
The growth in 1999 was due primarily to an increased demand for disposable pressure monitoring devices and the recent European launch of the first anti- microbial central venous catheter. Although critical care products have been, and are expected to continue to be, significant contributors to Edwards Lifesciences' total sales, Edwards Lifesciences management believes that future sales growth could be impacted by global pricing pressures and potential reimbursement decreases in Japan.
Vascular
Net sales of vascular products increased 2% in the year ended December 31, 1999 and increased 5% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, net sales of vascular products would have been flat in the year ended December 31, 1999 and would have increased 7% in the year ended December 31, 1998.
The sales growth in 1998 was due to new revenues generated from a third party arrangement involving Edwards Lifesciences' proprietary PTFE (synthetic material) technology and an increase in sales of Edwards Lifesciences' Side Branch Occlusion System that was introduced in July 1997. The Side Branch Occlusion System is an innovative technology that helps vascular surgeons efficiently restore circulation in the saphenous vein (a critical vein within the blood circulatory system located in the legs) by effectively removing clots and other blockages within the vein itself.
Edwards Lifesciences has made a significant commitment to the development of endovascular grafts, which are used to treat potentially life-threatening abdominal aortic aneurysms (AAA) through a minimally invasive approach. In 1999, Edwards Lifesciences commercially launched its Lifepath AAA endovascular graft in Europe and Australia, which is expected to add to future sales growth. Edwards Lifesciences is pursuing clinical trials in the United States and expects to obtain FDA regulatory approval within the next two years.
Perfusion Products and Services
Net sales of perfusion products and services decreased 9% in the year ended December 31, 1999 and decreased 7% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, net sales of perfusion products and services would have decreased 10% in the year ended December 31, 1999 and 6% in the year ended December 31, 1998.
Management believes that the decrease in sales of perfusion products and services was due primarily to a continued slowing in the number of coronary artery bypass graft procedures on a worldwide basis as well as significant continuing pricing pressures. Management believes that the slowdown in the number of traditional coronary bypass graft procedure surgeries has been caused by increased acceptance of newer, less-invasive procedures such as coronary stenting, which often eliminates or defers the need for cardiac surgery. Additionally, there has been an increase in the number of heart surgeries performed "off-pump" (the surgery is performed on
a beating heart without cardiopulmonary bypass) and this trend has reduced the need for perfusion services and the use of many traditional perfusion products manufactured and sold by Edwards Lifesciences. Also, perfusion products and services sales declined when Edwards Lifesciences ceased distributing certain perfusion products in the United States on behalf of Haemonetics, Inc. effective January 1, 1999. Net sales of product distributed on behalf of Haemonetics, Inc. were approximately $20 million for the year ended December 31, 1998.
Other
Other net sales increased 24% in the year ended December 31, 1999 and decreased 29% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, other net sales would have increased 10% in the year ended December 31, 1999 and would have decreased 26% in the year ended December 31, 1998.
Other sales include a diverse grouping of product lines comprised primarily of select distributed products that are sold in international regions, and miscellaneous pharmaceutical products. This category of sales, which generally represents less than ten percent of Edwards Lifesciences' total sales, has fluctuated based on the timing of new or terminated distribution agreements, foreign currency exchange rate fluctuations and other factors and events.
Joint Venture in Japan
Subsequent to the distribution, the CardioVascular business in Japan will be operated pursuant to a joint venture under which a Japanese subsidiary of Baxter will retain ownership of the Japanese business assets, but a subsidiary of Edwards Lifesciences will hold a 90% profit interest. Edwards Lifesciences will have an option to purchase the Japanese business assets, which option may be exercised no earlier than 28 months following the distribution date and no later than 60 months following the distribution date. The Japanese operations are consolidated in the accompanying combined financial statements as that is the historical treatment of the operations while a part of Baxter. Subsequent to the distribution, and based on new agreements between Baxter and the company, Edwards Lifesciences will record its interest in the joint venture on the equity method. On a pro forma basis, sales and other income statement amounts are different from the historical amounts, but net income for all periods is the same as the historical amounts. Reflecting the Japanese operations on the equity method, pro forma sales were $809 million in 1999, $790 million in 1998 and $791 million in 1997, and pro forma sales growth was 2% in 1999 and sales were approximately flat in 1998.
Gross Margin
Year ended
December 31,
--------------------------
1999 1998 1997
---- ---- -----
Gross margin percentage........................ 48.5% 46.1% 47.3%
Increase/(decrease).......................... 2.4 pts. (1.2 pts.)
|
The gross margin percentage increased 2.4 points in the year ended December 31, 1999 and decreased 1.2 points in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, the gross margin percentage would have increased 0.8 points in the year ended December 31, 1999 and 1.7 points in the year ended December 31, 1998. The increase in the gross margin percentage for both periods was due to increased sales of higher-margin cardiac surgery products and by a reduction in sales of lower- margin perfusion products and services.
Reflecting the Japanese operations on the equity method, the pro forma gross margin percentage was 46.6% in 1999, 44.8% in 1998 and 45.5% in 1997.
Marketing and Administrative Expenses
Year ended
December 31,
--------------------
1999 1998 1997
---- ---- ----
Marketing & administrative expenses as a
percentage of sales.............................. 25.7% 25.7% 24.0%
Increase......................................... -- 1.7 pts.
|
Marketing and administrative expenses increased as a percentage of sales in the year ended December 31, 1998 due to an increased investment in Edwards Lifesciences' direct United States field-sales force as a result of discontinuing sales of Research Medical products through outside distributors following the acquisition of Research Medical in March 1997. Reflecting the Japanese operations on the equity method, the pro forma marketing & administrative expenses as a percentatge of sales would have been 26.6% in 1999, 26.6% in 1998, and 24.9% in 1997.
Research and Development Expenses
Year ended
December 31,
-----------------
1999 1998 1997
---- ---- ----
(Dollars in
millions)
Research and development expenses........................ $55 $56 $53
% increase/(decrease)................................ (2%) 6%
Research and development expenses as a percentage of
sales................................................... 6.1% 6.5% 6.0%
|
Research and development expenses presented above exclude the in-process research and development charge relating to the acquisition of Research Medical in 1997, which is discussed in more detail in Note 3 of "Notes to Combined Financial Statements." As a percentage of sales, these expenses have remained relatively constant over the periods presented.
Edwards Lifesciences is engaged in ongoing research and development to introduce clinically-advanced new products, to maximize the effectiveness, ease of use, safety and reliability of its existing products and to expand the applications of its products as appropriate. Edwards Lifesciences has a strong commitment to bolster its research and development activities in the future with the goal of developing and commercializing new innovative products and therapies that enhance performance and patient quality of life and address cost-containment issues.
Goodwill Amortization
Goodwill amortization remained constant in the years ended December 31, 1999, 1998 and 1997.
Other Income and Expense
Refer to Note 9 to the "Combined Financial Statements" for a summary of the amounts included in other income and expense. Other income in 1998 principally consisted of $13 million of net insurance proceeds associated with hurricane damage at one of the company's manufacturing facilities, net of a $3 million loss associated with the impairment of a minority equity investment.
Income before Taxes
As a result of the factors discussed above, excluding the charge for in- process research and development in 1997, income before taxes increased 22% in the year ended December 31, 1999 and decreased 21% in the year ended December 31, 1998.
Income Taxes
The effective income tax rate for Edwards Lifesciences was approximately 27% in the year ended December 31, 1999, 33% in the year ended December 31, 1998 and 32% in the year ended December 31, 1997 (excluding the 1997 charge for in-process research and development). The reduction in the tax rate for the year ended December 31, 1999 was due primarily to more favorable tax grants in certain jurisdictions.
Net Income
Net income increased 32% in the year ended December 31, 1999 and decreased 23% in the year ended December 31, 1998 (excluding the 1997 charge for in- process research and development). These changes are consistent with the changes in income before taxes and the changes in Edwards Lifesciences' effective income tax rate, each as discussed above.
Liquidity and Capital Resources
Edwards Lifesciences management will assess Edwards Lifesciences' liquidity in terms of its overall ability to mobilize cash to support ongoing business levels and to fund its growth. Historically, Edwards Lifesciences has generated sufficient cash to satisfy its normal operating cash and capital requirements, and is expected to continue to do so in the future.
Cash flow provided by operations for 1999 was flat when compared to 1998 due primarily to higher inventory levels, offset by increased earnings and improved accounts receivable collections. Cash flows provided by operations for 1998 increased approximately 8% due primarily to improved accounts receivable collections, liability management, partially offset by lower earnings. In addition, included in cash flows provided by operations for 1998 was approximately $22 million in proceeds relating to the sale of certain trade receivables in Japan to an independent financial institution. An insignificant loss was recognized on the sale.
Uses of cash for investing activities included the acquisition of property, plant and equipment and acquisitions. Capital expenditures have remained fairly constant for all periods presented. Acquisition spending in 1999 related primarily to the purchase of the Century Heart Lung Machine (HLM) business of Cobe Cardiovascular Inc. from Sorin Biomedica. Net cash outflows for acquisitions in 1998 and 1997 related principally to the acquisition of Research Medical.
As of the distribution date, Edwards Lifesciences expects to have revolving credit facilities in place amounting to approximately $650 million. Approximately $520 million will be used to execute asset transfers from Baxter, assume debt from Baxter, pay bank fees related to the credit facilities and for general corporate purposes. Assuming a debt level of $520 million, Edwards Lifesciences' debt as a percent of total capital would have been 44.5% at December 31, 1999. See "Financing."
In addition to this short-term facility, Edwards Lifesciences management believes that it has sufficient cash flow from operations and financial flexibility to attract long-term capital to fund short-term and long-term growth objectives. However, no assurances can be given that such long-term capital will be available to Edwards Lifesciences on favorable terms, or at all.
Euro Conversion
On January 1, 1999, the European Economic and Monetary Union created and introduced the Euro, the official single currency for the eleven participating member countries. A transition period is currently in effect which began January 1, 1999 and will continue through December 31, 2001, during which time transactions will be executed in both the Euro and the member country's individual currencies. Effective January 1, 2002, Euro bank notes will be introduced and as of July 1, 2002, the Euro will be the sole legal tender of the European Economic and Monetary Union countries.
Edwards Lifesciences has appointed a team of individuals to address all issues associated with the conversion to the Euro and expects to be prepared for such conversion as of the designated dates. At the time Edwards Lifesciences switches to using the Euro as the sole functional currency for the affected regions, certain modifications that are primarily related to information systems, will be required. The costs associated with preparing for the conversion and continued use of the Euro will be expensed as incurred and are not expected to be material to Edwards Lifesciences' financial position, results of operations or cash flows. The ultimate impact on Edwards Lifesciences' business, including the impact on the competitive environment in which Edwards Lifesciences operates, is currently unknown.
New Accounting and Disclosure Standard
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for all quarters of fiscal years beginning after June 15, 2000. This Statement requires that all derivatives be recorded in the balance sheet as either assets or liabilities and be measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Management is in the process of evaluating this standard and has not yet determined the future impact on Edwards Lifesciences' combined financial statements.
Currency Risk
Edwards Lifesciences operates on a global basis and therefore is subject to the exposure resulting from foreign currency exchange rate fluctuations. These exposures arise from transactions denominated in foreign currencies, primarily from translation of results of operations from outside the United States. Additionally, such exposures may change over time as changes occur in Edwards Lifesciences' international operations.
For all periods presented, Edwards Lifesciences has been considered in Baxter's overall risk management strategy. As part of this strategy, Baxter managed its foreign currency exchange rate risk to an acceptable level based on management's judgment of the appropriate trade-off between risk, opportunity and costs. With respect to Edwards Lifesciences' currency risks, Baxter primarily utilized options to hedge these exposures.
As a stand-alone company, Edwards Lifesciences' objective will be to manage its exposure to foreign currency fluctuations to minimize earnings and cash flow volatility associated with foreign exchange rate changes. In order to reduce the risk of foreign currency exchange rate fluctuations, Edwards Lifesciences expects to establish a policy of hedging a substantial portion of its expected foreign currency denominated cash flow from operations. The instruments that Edwards Lifesciences expects use for hedging will be readily marketable traded forward contracts and options with financial institutions. Edwards Lifesciences expects that the changes in fair value of such contracts are expected to have a high correlation to the price changes in the related hedged cash flow. Edwards Lifesciences does not expect that the risk of transaction gains or losses from changes in the fair value of Edwards Lifesciences' foreign exchange position will be material because most transactions will occur in either the functional currency or in a currency that has a high correlation to the functional currency. The principal currencies that Edwards Lifesciences expects to hedge, which are the currencies of the markets that present the primary risk of loss to Edwards Lifesciences, are the Japanese Yen and the Euro. Any gains and losses on these hedge contracts are expected to offset changes in the value of the related exposures. Edwards Lifesciences expects to enter into foreign currency transactions only to the extent that foreign currency exposure exists. Edwards Lifesciences does not plan on entering into foreign currency transactions for speculative purposes. A sensitivity analysis of changes in the fair value of foreign currency exchange contracts outstanding at December 31, 1999 indicated that, if the U.S. dollar uniformly weakened by 10% against all currencies, the fair value of these contracts would decrease by $9 million. A similar analysis performed with respect to contracts outstanding at December 31, 1998 indicated that the fair value of such contracts would decrease by $5 million. The amount for 1999 was greater than that for 1998 due principally to a larger portfolio of foreign currency exchange contracts outstanding at December 31, 1999 and higher implied volatilities with respect to the Japanese Yen and the Euro.
FINANCING
Prior to the distribution, Edwards Lifesciences expects to have two revolving credit facilities amounting to $650 million, one of which is expected to have a maturity of one year, and another of which is expected to have a maturity of five years. A substantial portion is expected to be drawn at March 31, 2000, for the purposes described below. These facilities will enable Edwards Lifesciences to borrow funds on an unsecured basis at variable interest rates. Edwards Lifesciences expects to incur indebtedness of approximately $520 million from the facilities on or about the date of distribution, which will be used to execute asset transfers from Baxter, assume debt from Baxter, pay bank fees related to the credit facilities and for general corporate purposes. See "Edwards Lifesciences' Unaudited Pro Forma Financial Data."
EDWARDS LIFESCIENCES MANAGEMENT
Board of Directors
Immediately after the distribution date, Edwards Lifesciences expects that the Edwards Lifesciences board of directors will consist of the individuals named in the table below. The Edwards Lifesciences board of directors will be divided into three classes. Each director will serve for a term expiring at the annual meeting of stockholders in the year indicated below. For more information see "Certain Anti-Takeover Effects of Provisions of Edwards Lifesciences' Certificate of Incorporation and Bylaws and of Delaware Law."
Edwards Lifesciences will be managed under the direction of its board of directors. The Edwards Lifesciences board of directors will meet on a regular basis to review Edwards Lifesciences' operations, strategic and business plans, acquisitions and dispositions, and other significant developments affecting Edwards Lifesciences, and to act on matters requiring Edwards Lifesciences board approval. It will also hold special meetings when important matters require Edwards Lifesciences board action between scheduled meetings. Members of senior management will be invited to Edwards Lifesciences board meetings to discuss the progress of and future plans relating to their areas of responsibility.
Term as
Name/Age Director Background
-------- ------------ ----------
Michael A. Mussallem Expires 2003 Mr. Mussallem will be the Chairman of the
Age 47 Board and Chief Executive Officer of Edwards
Lifesciences. He first joined Baxter in 1979
and has been the Group Vice President of
Baxter's CardioVascular business since 1994
and Group Vice President of Baxter's
Biopharmaceutical business since 1998.
Vernon R. Loucks Jr. Expires 2001 Mr. Loucks served as a director of Baxter
Age 65 from 1975 through December 1999, including
chairman of the Board since 1987. He was
Chief Executive Officer of Baxter from 1980
through 1998 and was first elected as an
officer of Baxter in 1975. Mr. Loucks is
also a director of Affymetrix Inc.,
Anheuser-Busch Companies, Inc., Emerson
Electric Co., GeneSoft, Inc. and The Quaker
Oats Company.
Philip M. Neal Expires 2002 Mr. Neal is President and Chief Executive
Age 59 Officer and a director of Avery Dennison
Corporation, a multi-billion dollar Fortune
500 company that manufactures and markets a
wide range of products for consumer and
industrial markets, including Avery-brand
office supplies and Fasson-brand self-
adhesive materials. Mr. Neal joined Avery
Dennison in 1974, served as President and
Chief Operating Officer from 1990 through
April 1998, at which time he was elected
CEO. Mr. Neal serves as a director of
Independent Colleges of Southern California
and the Los Angeles Area Chamber of
Commerce, a trustee of Pomona College and a
Member of the Board of Governors of Town
Hall of California.
David E.I. Pyott Expires 2002 Mr. Pyott is President and Chief Executive
Age 46 Officer and a director of Allergan, Inc., a
global health care company that provides eye
care and specialty pharmaceutical products
worldwide. Prior to joining Allergan in
1998, he was a division president of
Novartis AG, and before 1996 he held various
positions with Sandoz International AG and
Sandoz Nutrition Corporation. He is also a
member of the board of directors of Avery
Dennison Corporation and the California
Healthcare Institute, serves on the
Executive Board of the Pharmaceutical
Research & Manufacturers of America and is
on the Executive Council of the University
of California-Irvine Graduate School of
Management.
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Term as
Name/Age Director Background
-------- ------------ ----------
Victoria R. Fash Expires 2001 Ms. Fash is President and Chief Executive
Age 48 Officer of IMS Health Incorporated, a
provider of information solutions to the
pharmaceutical and healthcare industries.
From 1996 to 1998, Ms. Fash was Executive
Vice President and Chief Financial Officer of
Cognizant Technology Solutions Corporation.
Prior to that in 1995, she was Senior Vice
President of Business Strategy for Dun &
Bradstreet. Ms. Fash is also a member of the
Board of Directors of Cognizant Technology
Solutions Corporation and Orion Capital
Corporation.
Mike R. Bowlin Expires 2003 Mr. Bowlin is Chairman of the Board and Chief
Age 57 Executive Officer of Atlantic Richfield
Company. Between 1995 and 1998, he also
served as President. Atlantic Richfield
Company and its subsidiaries are engaged in
the worldwide exploration, development,
production, transportation and refining of
petroleum and natural gas liquids. In
addition to serving on the Board of Directors
of Atlantic Richfield Company, he also serves
as a Director of Wells Fargo & Company.
|
Committees of the Board of Directors
To facilitate independent director review, and to make the most effective use of the directors' time and capabilities, the Edwards Lifesciences bylaws establish the committees described below. The Edwards Lifesciences board is permitted to establish other committees from time to time as it deems appropriate.
The Audit and Public Policy Committee
The Audit and Public Policy Committee will review the scope of the audit by the independent auditors, inquire into the effectiveness of Edwards Lifesciences' accounting and internal control functions, and recommend to the Edwards Lifesciences board any changes in the appointment of independent auditors which the committee may deem to be in the best interests of Edwards Lifesciences and its stockholders. The committee will also assist the Edwards Lifesciences board in establishing and monitoring compliance with the ethical standards of Edwards Lifesciences. The Audit and Public Policy Committee will also review the policies of Edwards Lifesciences to assure they are consistent with its social responsibility to employees, customers and society, including policies relating to health and safety and ethics. The committee will consist solely of directors who are independent of management. Members of this committee are expected to be: Philip M. Neal (Chairperson), Victoria R. Fash and David E.I. Pyott.
The Compensation and Planning Committee
The Compensation and Planning Committee will determine the compensation of
officers and outside directors, other than the Chairman of the Board and Chief
Executive Officer (which will be determined by the Edwards Lifesciences
board), exercise the authority of the Edwards Lifesciences board concerning
employee benefit plans and advise the Edwards Lifesciences board on other
compensation and employee benefit matters. In addition, the committee will
make recommendations to the Edwards Lifesciences board regarding candidates
for election as directors of Edwards Lifesciences. The committee will also
advise the board on board committee structure and membership and corporate
governance matters. The committee will consist solely of directors who are
independent of management. Members of this committee are expected to be:
Vernon R. Loucks Jr. (Chairperson), Mike R. Bowlin and David E.I. Pyott.
Compensation of Directors
Cash compensation of non-employee directors will consist of a $15,000 annual retainer. Chairpersons of committees will receive an additional annual retainer of $5,000. Employee directors are not compensated separately for their board or committee activities.
In addition, to align the directors' interests more closely with the interest of all of Edwards Lifesciences' stockholders, each non-employee director will receive an additional annual retainer in the form of 7,500 options to purchase Edwards Lifesciences common stock under the Edwards Lifesciences Corporation Non-Employee Directors and Consultants Stock Incentive Program. These options will vest fifty percent per year over two years. All non-employee directors, serving as such on the distribution date or joining the board in 2000, will also receive a one-time restricted common stock grant equal to 5,000 shares shares of Edwards Lifesciences common stock under the Edwards Lifesciences Corporation Non-Employee Directors and Consultants Stock Incentive Program. The common stock will remain restricted until the first anniversary of their election to the Edwards Lifesciences board of directors when it will vest entirely, if they remain on the board on such anniversary date.
Executive Officers
Set forth below is information with respect to those individuals who Edwards Lifesciences expects to serve as executive officers of Edwards Lifesciences immediately following the distribution. Except as described below, those individuals named below who are currently officers or employees of Baxter will resign from all positions with Baxter prior to or as of the distribution date.
Michael A. Mussallem, age 47. Mr. Mussallem will be the Chairman of the Board and Chief Executive Officer of Edwards Lifesciences. Mr. Mussallem joined Baxter in 1979 and has been the Group Vice President of Baxter's CardioVascular business since 1994 and Group Vice President of Baxter's Biopharmaceutical business since 1998. During his tenure at Baxter, Mr. Mussallem has held a variety positions with increased responsibility in engineering, product development and senior management. He was appointed General Manager of Access Products in 1984, Vice President and General Manager of Pharmaceuticals in 1986, President of the Perfusion Products business in 1988 and President of the Critical Care business in 1993. In 1994, Mr. Mussallem was named Group Vice President for Baxter's Surgical Group. From 1996 until 1998, he was the Chairman of Baxter's Asia Pacific Board overseeing Baxter operations throughout Asia. Mr. Mussallem received his Bachelor of Science degree in chemical engineering from Rose-Hulman Institute of Technology and was conferred an honorary doctorate by his alma mater in 1999.
Stuart L. Foster, age 49. Mr. Foster will be the Corporate Vice President, Global Operations of Edwards Lifesciences. Mr. Foster joined Baxter's CardioVascular Group in 1994 as President of the Vascular business, and continues to hold that position today. In 1997, his responsibilities increased to include global oversight responsibilities for the Critical Care business. He is also currently responsible for all international operations of the CardioVascular business and leads the CardioVascular business' Technology Innovation Team. Prior to joining Baxter, Mr. Foster was Chief Executive Officer and President of Intramed Laboratories, which was acquired by Baxter in 1994. Prior to that, he was an executive with SensorMedics Corporation, a medical device company that he co-founded. Mr. Foster received his Bachelor of Science degree in biomedical engineering from Rensselaer Polytechnic Institute and earned his masters degree from the University of Southern California.
Anita B. Bessler, age 52. Ms. Bessler will be the Corporate Vice President, Cardiac Surgery of Edwards Lifesciences. Ms. Bessler joined Baxter in 1988 as Vice President and General Manger of Sales and Marketing for Baxter's Hyland division. Prior to her tenure with Baxter, from 1986 until 1988 she was Senior Executive Vice President with the USV/Armour Pharmaceutical Division of Rhone Poulenc Rohrer. From 1976 until 1986, Ms. Bessler held senior management positions with Revlon's Healthcare Group. She is a member of the External Advisory Board of the Department of Biomedical Engineering of the Cleveland Clinic Research Institute. She is a graduate of Indiana University, where she earned a Bachelor of Science degree in marketing and economics.
Bruce J. Bentcover, age 45. Mr. Bentcover will be the Corporate Vice President and Chief Financial Officer of Edwards Lifesciences. Mr. Bentcover joined Baxter's CardioVascular Group in January 2000. From 1997 through 1998 Mr. Bentcover was Chief Operating and Financial Officer of the Women's Healthcare Management Group, a private physician practice management company that he co-founded. Prior to that he was Senior Vice President and Chief Financial Officer of Resort Condominiums International; Vice President-- Finance and Treasurer of Hallmark Cards Inc.; Vice President and Treasurer and then Vice President--Controller of Ecolab Inc. Mr. Bentcover earned his Bachelor of Arts degree in political science from Eastern Illinois University and received his MBA from the University of Chicago.
Bruce P. Garren, age 53. Mr. Garren will be Corporate Vice President, General Counsel and Secretary of Edwards Lifesciences. Mr. Garren joined Baxter's CardioVascular Group in February 2000. Previously, he was Senior Vice President--General Counsel for Safeskin Corporation, a manufacturer of latex and synthetic gloves for the healthcare and scientific markets. From 1985 to 1998, he was employed by Tambrands Inc., a medical device manufacturer. He served in various legal counsel positions at Tambrands, becoming Vice President--Group Counsel in 1991 and Vice President--General Counsel in 1996. Mr. Garren was an Associate with the law firm of Arnold & Porter in Washington, D.C. from 1980 to 1985. He received his undergraduate degree from Antioch College and his law degree from Cornell Law School.
Richard L. Miller, age 51. Mr. Miller will be the Corporate Vice President, Critical Care of Edwards Lifesciences. Mr. Miller joined American Hospital Supply Corporation in 1971, which was later acquired by Baxter, as a sales representative for Scientific Products. Prior to his appointment as President of the Critical Care business in 1999, he was President of Baxter's Health Systems from 1994 through 1997 and President, Corporate Health Systems, from 1997 through 1998. During that time, Mr. Miller was a member of Baxter's North American Board and also led Baxter's North American Sales and Marketing Taskforce. Mr. Miller received a Bachelor of Arts in biology and chemistry from the University of Colorado and earned an MBA from Portland University. He also served in the United States Army Reserve from 1970 until 1976.
Andre-Michel Ballester, age 41. Mr. Ballester will be the Corporate Vice President, Europe for Edwards Lifesciences. Mr. Ballester joined Baxter in 1986 as a Strategic Planning Analyst for Baxter France and subsequently became Operations Manager for Baxter France. In 1989, he left the company to become General Manager of consumer electronics company Prestinox International. Mr. Ballester returned to Baxter in 1992 as Director of European Sales and Marketing for the Critical Care division of Baxter's CardioVascular Group; he was appointed Vice President of Marketing in 1995 and later assumed responsibility for the Critical Care division's global marketing and business development activities. Mr. Ballester currently serves as President of Baxter's CardioVascular Group Europe and as Chairman of Baxter France. He holds a Master of Science degree in chemical engineering from the Ecole Centrale Lille in France and an MBA from INSEAD, Fontainebleau, France.
John H. Kehl, Jr., age 46. Mr. Kehl will be the Corporate Vice President, Strategy & Business Development of Edwards Lifesciences. Mr. Kehl has held various positions of increasing responsibility at Baxter since joining its treasury department in 1975. In 1980, he was promoted to Manager of Investor Relations and Communications and, in 1985, assumed responsibility for directing all aspects of Baxter's external communications. Mr. Kehl was appointed Vice President, Controller for Baxter's CardioVascular business in 1988 with responsibility for finance, information systems and business planning. He became Vice President of Business Development in 1995, a position he continues to hold today. In his current capacity, he leads all business development initiatives, including strategy development and acquisition and divestiture activities. Mr. Kehl has also served on Baxter's Japan Board that oversees all operations in Japan. He earned his Bachelor of Arts degree in business and economics from Loras College and received his MBA from Loyola University in Chicago.
Robert C. Reindl, age 45. Mr. Reindl will be the Corporate Vice President, Human Resources of Edwards Lifesciences. From 1993 through 1997, Mr. Reindl was Vice President of Baxter's Institute for Training and
Development. In 1997, he became the Vice President, Human Resources, for Baxter's CardioVascular business. From 1987 until 1993, Mr. Reindl was a manager with Arthur Andersen & Co., where he consulted on a variety of human resource and organizational development issues, as well as designed training programs focusing on time management, communication, team building and interviewing. Prior to this, he was a communications instructor at Marietta College and Ohio University. Mr. Reindl earned his Bachelor of Science degree in communication from the University of Wisconsin-Stevens Point and his masters degree from Bowling Green State University in Ohio.
Huimin Wang, M.D., age 43. Dr. Wang will be Corporate Vice President, Japan. In addition to his responsibilities with Edwards Lifesciences, Dr. Wang will act as a representative director of Baxter Limited, a Japan corporation. Dr. Wang joined Baxter in 1993 and served as a Senior Manager of strategy development and, later, Director of product/therapy for Baxter's Renal division in Japan. In 1997, he became President of medical systems and devices, responsible for both the CardioVascular and Intravenous Systems businesses in Japan. Prior to joining Baxter, Dr. Wang was a Senior Associate with Booz, Allen & Hamilton in Chicago, specializing in strategy development, organizational change, operations improvement and mergers and acquisitions for health care providers. From 1990 until 1991, he was Vice President of Integrated Strategies Inc., a consulting and venture management firm he co- founded. He also was an Associate with McKinsey & Company. From 1981 until 1986, Dr. Wang was a Resident and Staff Physician in anesthesiology at Keio University Hospital in Tokyo. Dr. Wang earned his Doctor of Medicine degree from Kagoshima University in Japan, and his MBA from the University of Chicago.
Randel W. Woodgrift, age 38. Mr. Woodgrift will be Corporate Vice President, Manufacturing Operations of Edwards Lifesciences. Since joining Baxter in 1983, Mr. Woodgrift has held positions of increasing responsibility in research and development, manufacturing and operations, including management of the Puerto Rico operation of Baxter's CardioVascular Group. From 1990 to 1993, Mr. Woodgrift held Director positions in U.S. operations and established CardioVascular's first plant in Mexico. From 1994 to 1997, he was Vice President, Heart Valve Operations for the United States and Europe. In 1997, his responsibilities were expanded to include all European plants. In 1998, Mr. Woodgrift assumed responsibility for all CardioVascular manufacturing, logistics, facilities, environmental and health and safety functions. In 1999, he initiated CardioVascular's first operations in the Dominican Republic. Mr Woodgrift earned his Bachelor of Science degree in mechanical engineering from California Polytechnic State University, San Luis Obispo, a biomedical engineering certification from the University of California--Irvine and an MBA from Pepperdine University.
EDWARDS LIFESCIENCES EXECUTIVE COMPENSATION
1999 Compensation of Executive Officers
The following table shows the 1999 compensation for services rendered by the Chairman of the Board and Chief Executive Officer of Edwards Lifesciences and the individuals who are expected to be the next four most highly compensated executive officers of Edwards Lifesciences (collectively, referred to as the "named executive officers") based on their 1999 Baxter compensation, if any, and their expected 2000 Edwards Lifesciences compensation. The compensation shown in this table was paid by Baxter or its subsidiaries for services rendered to Baxter and its subsidiaries. References to "restricted stock" and "stock options" mean restricted shares of Baxter common stock and options to purchase Baxter common stock. Amounts shown are for each individual in his or her last position with Baxter, and do not necessarily reflect the compensation which these five individuals will earn in their new capacities as executive officers of Edwards Lifesciences.
Summary Compensation Table
Long-Term Compensation
------------------------------------------
Annual Compensation Awards Payouts
---------------------- --------------------- -------
Restricted All
Stock Securities LTIP Other
Salary Bonus Other Award(s) Underlying Payouts Compensation
Name and Principal Position Year ($)(1) ($)(1) ($)(2) ($)(3) Options(4) ($)(5) ($)(6)
--------------------------- ---- ------- ------- ------ ---------- ---------- ------- ------------
Michael A. Mussallem....... 1999 410,000 310,000 10,049 -0- 118,900 329,766 16,788
Chairman of the Board &
Chief Executive Officer
Anita B. Bessler........... 1999 237,442 96,000 -- -0- 50,800 188,438 6,914
Group Vice President
Stuart L. Foster........... 1999 236,231 96,000 -- -0- 50,800 188,438 7,332
Group Vice President
Bruce J. Bentcover......... 1999 -- -- -- -- -- -- --
Corporate Vice President(7)
Bruce P. Garren............ 1999 -- -- -- -- -- -- --
Corporate Vice President(7)
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(4) No Stock Appreciation Rights (SARs) were granted by Baxter in 1999, and there are no outstanding SARs held by any employee or director of Edwards Lifesciences. The number of options granted in 1999 includes the options granted and exercised pursuant to Baxter's Shared Investment Plan, as described below in footnote (3) to the "Option Grants Table" on page 55.
(5) Amounts shown represent the market value of earned restricted stock which vested under Baxter's Long- Term Incentive Plan on December 31, 1999. The vested shares were earned as of December 31, 1998.
(6) Amounts shown represent matching contributions made under the Baxter
International Inc. and Subsidiaries Incentive Investment Plan (Baxter
Incentive Investment Plan), a tax-qualified section 401(k) profit sharing
plan, additional matching contributions in Baxter's deferred compensation
plan and the dollar value of split-dollar life insurance benefits. Those
three amounts, expressed in the same order as identified above, for the
named executive officers are as follows: Mr. Mussallem--$4,800, $11,988,
and $288; Ms. Bessler--$4,800, $2,114, and $210; Mr. Foster--$4,800,
$2,532, and $156; Mr. Bentcover--$0, $0, and 0; and Mr. Garren--$0, $0,
and 0.
(7) Messrs. Bentcover and Garren joined Edwards Lifesciences in January and
February 2000, respectively, and did not earn compensation from Edwards
Lifesciences in 1999. They are, however, expected to be among the five
highest paid executive officers of Edwards Lifesciences in 2000.
Stock Option Grants
The following table contains information relating to the Baxter stock option grants made in 1999 to the named executive officers.
Option Grants Table Option Grants in Last Fiscal Year
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------- -----------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year (%)(1) ($/Sh)(2)(3) Date 0% ($) 5% (4)(5)(6) 10% (4)(5)(6)
---- ----------- ------------------ ------------ ---------- ------ --------------- ---------------
Mr. Mussallem........ 18,900 .2 67.6875 2/13/09 -0- $ 2,083,835 $ 3,318,159
100,000 1.2 63.6250 5/3/99 -0- -- --
--------------------------------------------------------------------------------------------------------------------------
Ms. Bessler.......... 10,800 .1 67.6875 2/13/09 -0- $ 1,190,763 $ 1,896,091
40,000 .5 63.6250 5/3/99 -0- -- --
--------------------------------------------------------------------------------------------------------------------------
Mr. Foster........... 10,800 .1 67.6875 2/13/09 -0- $ 1,190,763 $ 1,896,091
40,000 .5 63.6250 5/3/99 -0- -- --
--------------------------------------------------------------------------------------------------------------------------
Mr. Bentcover........ -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Mr. Garren........... -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
All Stockholders..... N/A N/A N/A N/A -0- $31,080,316,210(5) $49,490,209,190(5)
--------------------------------------------------------------------------------------------------------------------------
All Optionees........ 8,128,000 100 Various Various -0- $ 870,507,351(6) $ 1,384,137,475(6)
--------------------------------------------------------------------------------------------------------------------------
Optionee Gain as % of
All Stockholders'
Gain................ N/A N/A N/A N/A N/A 2.8% 2.8%
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(3) The options shown in this table as granted to the named executive officers at the exercise price of $67.6875 become exercisable three years from the date of grant. The exercise price of the options may be paid in cash or in shares of Baxter common stock. If specified corporate control changes occur, all outstanding options will become exercisable immediately. The options shown in this table as granted to the named executive officers at the exercise price of $63.6250 were granted on May 3, 1999 pursuant to Baxter's Shared Investment Plan. Under the Shared Investment Plan, the named executive officers (except Messrs. Bentcover and Garren) and 139 other Baxter executives exercised a one-day stock option to purchase a significant amount of Baxter common stock. The stock option exercises were financed through
full-recourse, personal loans made by commercial banks. The loans are
guaranteed by Baxter. More information on the Shared Investment Plan is
contained in Baxter's proxy statement dated March 24, 2000.
(4) Potential realizable values are calculated net of the option exercise
price but before taxes associated with exercise. The assumed rates of
stock price appreciation are set by rules of the SEC governing proxy
statement disclosure and are not intended to forecast the future
appreciation of Baxter common stock.
(5) The potential realizable values for all stockholders were calculated on
the 290,199,514 shares of Baxter stock outstanding on December 31, 1999.
The potential realizable values were calculated assuming the stockholders
purchased Baxter stock at $67.6875, the closing price on February 15,
1999. Because the Shared Investment Plan options were granted and
exercised at the closing price of Baxter stock on May 3, 1999, there was
no potential realizable value for the option term.
(6) The potential realizable values for all optionees were calculated based on
the approximately 8.1 million options that were granted to employees of
Baxter at various exercise prices at different times during the year. The
potential realizable values were calculated assuming that all of the
options were granted at the $67.6875 exercise price.
Stock Option Exercises
The following table contains information relating to the exercise of Baxter common stock options by the named executive officers in 1999, as well as the number and value of their unexercised Baxter common stock options as of December 31, 1999.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Fiscal Year-End (#)(2) Fiscal Year End ($)(3)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#)(1) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ------------------ --------------- ----------- ------------- ----------- -------------
Mr. Mussallem........... 111,018 575,601 143,449 79,900 2,929,443 455,188
Ms. Bessler............. 56,754 738,014 39,525 38,800 742,798 244,125
Mr. Foster.............. 40,000 -0- 71,628 38,800 1,274,214 244,125
Mr. Bentcover........... -- -- -- -- -- --
Mr. Garren.............. -- -- -- -- -- --
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(1) The number of shares shown in these columns include the options granted
and exercised on May 3, 1999 pursuant to Baxter's Shared Investment Plan.
See footnote (3) to the Option Grants Table on page 55. Because those
options were granted and exercised at the closing price of Baxter common
stock on May 3, 1999, there was no value realized upon the exercise of
those options.
(2) The sum of the numbers under the Exercisable and Unexercisable columns of
this table represents each named executive officer's total number of
outstanding Baxter options.
(3) The dollar amounts shown under the Exercisable and Unexercisable columns
of this table represent the number of exercisable and unexercisable Baxter
options, respectively, which had an exercise price below the closing price
of Baxter common stock on December 31, 1999, which was $62.8125,
multiplied by the difference between such closing price and the exercise
price of the Baxter options.
Pension Plan and Excess Pension Plan
The table on the following page shows estimated annual retirement benefits payable to participants under the Baxter International Inc. and Subsidiaries Pension Plan (Pension Plan) whose employment terminates at normal retirement age (age 65). The Pension Plan's normal retirement benefit equals (1) 1.75% of an employee's Final Average Pay multiplied by the employee's number of years of benefit service, as defined by the Pension Plan, minus (2) 1.75% of an employee's estimated primary social security benefit, multiplied by the employee's years of benefit service, as defined by the Pension Plan. An employee's Final Average Pay is equal to the average of an employee's five highest consecutive calendar years of earnings out of his or her last ten calendar years of
earnings. In general, the earnings covered by the Pension Plan include salary, annual cash bonuses and other regular pay. The figures shown include benefits payable under the Pension Plan and Baxter's related defined benefit excess pension plan. The estimates assume that benefit payments begin at age 65 under a single life annuity form. The figures are net of the Social Security offset specified by the Pension Plan's benefit formula and therefore do not include Social Security benefits payable from the federal government. The estimated primary Social Security benefit used in the calculations is that payable for an individual attaining age 65 in 1999.
Although age 65 is the normal retirement age under the Pension Plan, the Pension Plan has early retirement provisions based on a point system. Under the point system, each participant is awarded one point for each year of benefit service, as defined by the Pension Plan and one point for each year of age. Participants who terminate employment after accumulating at least 65 points, and who wait to begin receiving their Pension Plan benefits until they have 85 points, receive an unreduced Pension Plan benefit regardless of their actual age when they begin receiving their Pension Plan benefits.
Pension Plan Table
Estimated Annual Retirement Benefits
Years of Pension Plan
Final Average Pay(1)($) Participation(1)($)
----------------------- ---------------------------------------
10 15 20 25 30
------- ------- ------- ------- -------
100,000.......................... 14,500 21,700 29,000 36,200 43,400
200,000.......................... 32,000 48,000 64,000 80,000 95,900
300,000.......................... 49,500 74,200 99,000 123,700 148,400
400,000.......................... 67,000 100,500 134,000 167,500 200,900
500,000.......................... 84,500 126,700 169,000 211,200 253,400
600,000.......................... 102,000 153,000 204,000 255,000 305,900
700,000.......................... 119,500 179,200 239,000 298,700 358,400
800,000.......................... 137,000 205,500 274,000 342,500 410,900
900,000.......................... 154,500 231,700 309,000 386,200 463,400
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(1) As of December 31, 1999, the named executive officers' years of benefit
service and Final Average Pay for purposes of calculating annual
retirement benefits payable under the Pension Plan are as follows:
Mr. Mussallem--19 years and $544,908; Ms. Bessler--11 years and $269,068;
Mr. Foster--9 years and $255,804; Mr. Bentcover--0 years and $0; and Mr.
Garren--0 years and $0.
Baxter Common Stock Held By Edwards Lifesciences Employees
Baxter restricted common stock held by Edwards Lifesciences employees that has not yet been earned will be forfeited. Baxter restricted common stock held by Edwards Lifesciences employees that has been earned but not yet vested will vest so long as such employees remain employed by Edwards Lifesciences or Baxter through the remainder of the vesting period. It is anticipated that Edwards Lifesciences employees holding Baxter stock options will, as of the distribution date, be considered terminated and, as such, vesting and exercise will be in accordance with the terms and conditions of the outstanding grants. It is also anticipated that Edwards Lifesciences will grant converted stock options for certain unvested Baxter stock options pursuant to the Edwards Lifesciences Long-Term Stock Incentive Compensation Program.
Future Compensation of Executive Officers
The compensation of Edwards Lifesciences' executive officers for periods beginning on and after the distribution date will be determined by the Edwards Lifesciences board of directors or its Compensation Committee.
Compensation Philosophy For Executive Officers
Edwards Lifesciences expects that its philosophy will be to provide compensation opportunities supporting Edwards Lifesciences' business objectives and values. Forms and levels of total compensation will be structured to be competitive when compared to other companies of similar focus and size. These companies are reported in surveys whose participants include many companies in the Fortune 500 as well as other companies with which
Edwards Lifesciences and its subsidiaries compete for executive talent. This philosophy is intended to assist Edwards Lifesciences in attracting, retaining and motivating executives with superior leadership and management abilities. Consistent with this philosophy, a total compensation structure will be determined for each officer, including Mr. Mussallem, consisting primarily of salary, cash bonus, stock options and benefits. The proportions of these elements of compensation will vary among the officers depending upon their levels of responsibility. The senior executive officers will receive a larger portion of their total compensation through performance-based incentive plans, which place a greater percentage of their compensation at risk while more closely aligning their interests with the interests of Edwards Lifesciences' stockholders.
Edwards Lifesciences' philosophy with respect to the limitation on the tax- deductibility of executive compensation will be to maximize the benefit of tax laws for Edwards Lifesciences' stockholders by seeking performance-based exemptions which are consistent with Edwards Lifesciences' compensation policies and practices. Edwards Lifesciences will adopt performance goals for the officer cash bonus plan which are expected to satisfy the deductibility requirements with respect to any payments under those plans.
Compensation Elements
Salaries will be targeted each year at the median of salaries of executive officers in comparison companies. In addition, officer salaries will be based on the officer's individual performance. Bonuses are intended to provide executive officers with an opportunity to receive additional cash compensation but only if they earn it through Edwards Lifesciences' achievement of strong performance results as measured by key financial indicators. Each year, a bonus target will be established for each executive officer between the 50th and 75th percentile of the market data of comparison companies. After year-end results are calculated, each officer's bonus will be determined based on Edwards Lifesciences' performance against the key financial indicators established for the year. Achievement of the performance objectives will determine an officer's opportunity to earn bonus compensation either significantly above or below the bonus target.
Stock options will be granted under Edwards Lifesciences' 2000 Incentive Compensation Program and such other stock option plans that may be established, as described below. They represent a vehicle for more closely aligning management's and stockholders' interests, specifically motivating executives to remain focused on the market value of Edwards Lifesciences Stock.
The number of stock options granted to executive officers is expected to be market-based. The intent is to provide an opportunity to earn stock-based compensation at the 75th percentile compared to executives in comparison companies.
Long-Term Stock Program
Edwards Lifesciences expects to adopt the Edwards Lifesciences Long-Term Stock Incentive Compensation Program (Incentive Program). The Incentive Program is expected to be approved by Baxter as sole stockholder of Edwards Lifesciences prior to the distribution.
General
The Incentive Program is designed to promote success and enhance the value of Edwards Lifesciences by linking participants' interests more closely to those of Edwards Lifesciences stockholders and by providing participants with an incentive for excellence.
The Incentive Program will be administered by the Compensation Committee of Edwards Lifesciences. The Compensation Committee must consist of two or more directors who qualify as non-employee directors under Rule 16b-3 of the Securities Exchange Act of 1934 and as outside directors under Section 162(m) of the Code. Incentives may consist of the following: (a) stock options; (b) restricted stock; (c) performance shares; and (d)
performance units. Incentives may be granted to certain contractors and any employee of Edwards Lifesciences (including directors of Edwards Lifesciences who are also employees of Edwards Lifesciences) selected from time to time by the Compensation Committee.
The number of shares of Edwards Lifesciences common stock authorized for issuance (including conversion for outstanding awards) under the Incentive Program and all other stock-based compensation plans in place at the time of the distribution will not exceed 20 to 22% of the outstanding shares of Edwards Lifesciences common stock as of the distribution date.
Stock Options
Under the Incentive Program, the Compensation Committee may grant non- qualified and incentive stock options to eligible employees to purchase shares of Edwards Lifesciences common stock from Edwards Lifesciences. The Incentive Program gives the Compensation Committee discretion, with respect to any such stock option, to determine the number and purchase price of the shares subject to the option, the term of each option and the time or times during its term when the option becomes exercisable, subject to the following limitations. No stock option may be granted with a purchase price below the fair market value of the shares subject to the option on the date of grant and the term may not exceed 10 years from the date of grant. The fair market value of shares on the date of a grant shall mean the closing sale price of Edwards Lifesciences common stock as reported on the New York Stock Exchange composite reporting tape. No person may receive, in any calendar year, stock options which, in the aggregate, represent more than 1,000,000 shares of Edwards Lifesciences common stock. The initial option grant to the named executive officers is expected to be as follows: Mr. Mussallem, 470,000 shares; Ms. Bessler, 140,000 shares; Mr. Foster, 190,000 shares; Mr. Bentcover, 110,000 shares; and Mr. Garren, 75,000 shares.
Restricted Stock
Restricted stock consists of the sale or transfer by Edwards Lifesciences to an eligible employee of one or more shares of Edwards Lifesciences common stock which are subject to restrictions on their sale or other transfer by the employee. The price, if any, at which restricted stock will be sold will be determined by the Compensation Committee, and it may vary from time-to-time and among employees and may require no payment or be less than the fair market value of the shares at the date of sale. All shares of restricted stock may be subject to the attainment of performance goals under Section 162(m) of the tax code and other restrictions as the Compensation Committee may determine. Subject to these restrictions and the other requirements of the Incentive Program, a participant receiving restricted stock will have the rights of a stockholder (including voting and dividend rights) as to those shares only to the extent the Compensation Committee designates such rights at the time of the grant. Not more than 500,000 shares of Edwards Lifesciences common stock may be issued in the form of restricted stock under the Incentive Program. No person may receive, in any calendar year, shares of restricted stock which, in the aggregate, represent more than 50,000 shares of Edwards Lifesciences common stock.
Performance Shares and Performance Units
Performance shares and performance units consist of the grant by Edwards Lifesciences to an eligible employee of a contingent right to receive payment of the value of such shares or units. The performance shares or performance units will be earned to the extent performance goals set forth in the grant are achieved. The Compensation Committee shall have discretion to make payments of earned performance shares or performance units in the form of cash or Edwards Lifesciences common stock (or a combination thereof). All grants of performance shares and performance units to a person subject to Section 16(a) of the Exchange Act (executive officers of Edwards Lifesciences) will be subject to the attainment of performance goals under Section 162(m) of the tax code. The number of shares or units granted and the performance goals will be determined by the
Compensation Committee. No person may receive in any calendar year performance shares which, in the aggregate, represent more than 100,000 shares of Edwards Lifesciences common stock. No person may receive in any calendar year performance units which, in the aggregate, exceed $2,000,000.
Section 162(m) Performance Goals
Under the Incentive Program, grants of restricted stock, performance shares, and other incentives (as defined in the Incentive Program) may be subject to the attainment of performance goals under Section 162(m) of the tax code. The regulations under Section 162(m) require the performance goals related to grants under the Incentive Program to be approved separately by Edwards Lifesciences' stockholders. Performance goals for performance based grants may include, but are not limited to, stock price, sales, return on equity, cash flow, market share, earnings per share and/or costs.
Non-Transferability of Incentives
Unless otherwise determined by the Compensation Committee, no stock option, performance share or performance unit granted under the Incentive Program will be transferable by its holder, except in the event of the holder's death, by will or the laws of descent and distribution. During an employee's lifetime, these incentives may be exercised only by the employee or the employee's guardian or legal representative. The Compensation Committee may allow the limited transfer of these incentives to the immediate family of an employee to facilitate estate planning.
Amendment of the Program
Edwards Lifesciences' board of directors may amend or discontinue the Incentive Program at any time. However, no amendment or discontinuance may adversely affect in any material way an incentive previously granted without the written consent of the participant holding such incentive. In addition, the board of directors may not amend the Incentive Program without approval of Edwards Lifesciences' stockholders to the extent such approval is required by law, agreement or any exchange on which Edwards Lifesciences common stock is traded.
Acceleration of Incentives
In the event of a change in control of Edwards Lifesciences (as specified in the Incentive Program), the restrictions on all outstanding shares of restricted stock that are not performance-based will lapse immediately, all outstanding stock options will become exercisable immediately and all performance goals will be deemed to be met at target and payment made within 30 days of the effective date of the change in control.
Other Edwards Lifesciences Stock Option Plans
Edwards Lifesciences also expects to adopt one or more stock option plans to provide for the grant of non-statutory stock options to certain consultants, independent contractors and other persons who are not employees of Edwards Lifesciences and its subsidiaries, including the Edwards Lifesciences Corporation Non-Employee Directors and Consultants Stock Incentive Program.
Edwards Lifesciences Change of Control Plan and Employment Agreement
Edwards Lifesciences expects to adopt the Edwards Lifesciences Change of Control Plan. Pursuant to agreements entered into under this plan, employees selected to participate (including each of the named executive officers) will be entitled to separation pay and benefits following a change of control in Edwards Lifesciences and the employee's subsequent termination of employment unless such termination is voluntary and unprovoked or results from death, disability, retirement or cause. The eligible termination must occur within 24 months of the change of control or the agreement is void. Mr. Mussallem will be permitted to terminate his employment
voluntarily at any time during the thirteenth month following a change of control and collect the change of control separation pay and benefits. Each agreement will continue for three years from the distribution date and automatically extend for one year on each anniversary of the agreement, unless Edwards Lifesciences notifies the specific participant in writing that the agreement will not be renewed.
Under this plan, the separation pay will equal either three years' annualized base salary and target cash bonus or two years' annualized base salary and target cash bonus (as determined by the Compensation Committee in its discretion depending on the employee's position). In addition, vesting of all outstanding equity grants will be accelerated upon a change of control and other terms and conditions will be governed by the provisions of the Edwards Lifesciences 2000 Incentive Compensation Program.
In the event that any payments would be subject to an excise tax under the tax code, Edwards Lifesciences will pay an additional gross-up amount for any excise tax and federal, state and local income taxes, such that the net amount of the payments would be equal to the net payments after income taxes had the excise tax and resulting gross-up not been imposed.
Edwards Lifesiences will enter into an employment agreement with its Chief Executive Officer, Michael A. Mussallem. The agreement has a term of three years, with automatic one-year renewals after two years. The agreement sets forth Mr. Mussallem's compensation and benefits arrangements. The agreement provides that if Edwards Lifesciences terminates Mr. Mussallem for "cause" as defined in the employment agreement, he will be entitled to his base salary through the date of termination and all vested benefits. If Mr. Mussallem is involuntarily terminated by Edwards Lifesciences without "cause" as defined in the employment agreement, Edwards Lifesciences is required to pay Mr. Mussallem his unpaid base salary and accrued vacation through the date of termination; a pro rata portion of his annual target bonus for the period served; two times the sum of (1) his annualized base salary and (2) the greater of his target annual bonus for the year he is terminated or his actual annual bonus for the prior year; and 24 months of continued medical coverage. The agreement also contains non-disclosure, non-solicitation and non- disparagement obligations of Mr. Mussallem.
Edwards Lifesciences Retirement Plan for United States Employees
Edwards Lifesciences will adopt a tax-qualified defined contribution retirement plan (Edwards Lifesciences Retirement Plan) for its United States employees effective on the distribution date. This plan will include a section 401(k) deferred compensation account (401(k) account), a company matching contribution account, a performance account for Edwards Lifesciences' hourly manufacturing employees, an initial stock grant for Edwards Lifesciences' hourly employees and a transition account for each eligible employee, as described below.
The defined contribution accounts for transferring employees under the Baxter Incentive Investment Plan will be transferred to the Edwards Lifesciences Retirement Plan. The Edwards Lifesciences Retirement Plan will establish a fund to hold the Baxter common stock currently held on behalf of Edwards Lifesciences employees in the Baxter Incentive Investment Plan. The Edwards Lifesciences Retirement Plan will allow participants to redirect the balances of their Edwards Lifesciences Retirement Plan accounts that are invested in the Baxter common stock fund but not allow participants to direct that their plan accounts make new investments in Baxter common stock within the Edwards Lifesciences Retirement Plan.
401(k) Account and Company Matching Contribution Account
Employees of Edwards Lifesciences will be eligible to contribute to the Edwards Lifesciences Retirement Plan on or after the distribution date. Participants may elect to contribute, on a before-tax basis, up to 15% of their annual eligible compensation as defined by the Edwards Lifesciences Retirement Plan to their 401(k) accounts. Edwards Lifesciences will match the first 3% (from 1-3%) of the participant's annual eligible compensation contributed to the plan on a dollar for dollar basis. Edwards Lifesciences will match the next 2% (from 4-5%) of the participant's annual eligible compensation to the plan on a 50% basis.
Performance Account
Subject to the terms of the Edwards Lifesciences Retirement Plan, hourly manufacturing employees of Edwards Lifesciences in the United States will be eligible to receive contributions to their performance accounts under such plan. Edwards Lifesciences will make discretionary contributions to each performance account in an amount equal to a target of 3% of the participant's annual eligible compensation based on achievement of certain performance measures. Contributions will be made quarterly, in cash, and will be invested according to each employee's current 401(k) account investment elections if the employee is a participant in the 401(k); otherwise the contributions will be invested in the Edwards Lifesciences Common Stock Fund. Such contribution will be immediately vested, and participants may elect to re-invest them in any of the other funds within the Retirement Plan.
Initial Stock Grant Account
Edwards Lifesciences will be awarding each hourly manufacturing employee in the United States a contribution of [50] shares of Edwards Lifesciences common stock to be held in a special account under the Edwards Lifesciences Retirement Plan. The grant will be immediately vested, but the shares will not be available for loan or withdrawals, and the special stock account may not be reallocated to other funds within the 401(k) account.
Transition Account
Edwards Lifesciences has determined that it will facilitate the transition of certain longer service employees from the Baxter Pension Plan to the Edwards Lifesciences Retirement Plan by offering some additional benefits to employees who meet specific age and service criteria. Contributions to a transition account under the Edwards Lifesciences Retirement Plan will be made to five groups of salaried non-exempt and hourly manufacturing employees. These contributions will be made in cash, and will be invested according to each employee's current 401(k) account investment elections if the employee is a participant in the 401(k); otherwise the contributions will be invested in the Edwards Lifesciences Common Stock Fund. They will be immediately vested, and participants may elect to re-invest them in any of the other funds within the Retirement Plan. Annual contributions will be made for eligible participants until the earlier of when such participant terminates employment or reaches age 65.
Employees with 75 or more "points" (as determined under the terms of the Baxter Pension Plan explained on page 56) as of the distribution date will receive transition contributions equal to 5% of the participant's eligible compensation.
Employees with 70-74 "points" as of the distribution date will receive transition contributions equal to 3% of the participant's eligible compensation.
Employees with 65-69 "points" as of the distribution date will receive transition contributions equal to 2.5% of the participant's eligible compensation.
Employees with 60-64 "points" and at least 10 years of "benefit service" (as determined under the terms of the Baxter Pension Plan explained on page 56) as of the distribution date will receive transition contributions equal to 1% of the participant's eligible compensation.
Employees with 55-59 "points" and at least 10 years of "benefit service" (as determined under the terms of the Baxter Pension Plan explained on page 56) as of the distribution date will receive transition contributions equal to one-half of 1% of the participant's eligible compensation.
Edwards Lifesciences Non-Qualified Plan
Federal income tax laws limit the amount Edwards Lifesciences may contribute to the accounts of certain highly compensated participants under the Edwards Lifesciences Retirement Plan. Federal income tax laws also limit the amount participants may contribute to their accounts under the Edwards Lifesciences Retirement Plan. Edwards Lifesciences will adopt an unfunded non- qualified excess plan (Edwards Lifesciences Excess Plan) that will credit participants affected by the limits with the amount of their contributions that the participants would have contributed or that Edwards Lifesciences would have contributed on their behalf to the Edwards Lifesciences Retirement Plan but for such limits. Eligible participants may elect to defer all or a portion of their bonuses payable under the Edwards Lifesciences Incentive Plan to the Edwards Lifesciences Retirement Plan.
Baxter Pension Plan
Eligible Edwards Lifesciences employees (transferring employees) will continue to participate for purposes of benefit accruals in the Baxter Pension Plan through the distribution date. All benefit accruals for Edwards Lifesciences United States employees in the Baxter Pension Plan cease as of the distribution date and all such employees will be fully vested in their accrued benefits under the Pension Plan as of such date. Edwards Lifesciences' United States employees with vested accrued benefits in the Pension Plan will have those benefits maintained by the Pension Plan until they are eligible or required to receive them according to the terms of the Plan.
Employee Stock Purchase Plan for United States Employees
Edwards Lifesciences will adopt an employee stock purchase plan for its United States employees, as described in Section 423 of the tax code. All active employees of Edwards Lifesciences and its United States subsidiaries will be eligible to participate in the Plan. The employee stock purchase plan will make available shares of Edwards Lifesciences common stock for purchase by eligible employees through payroll deductions at a maximum rate of 12% of eligible compensation. The purchase price per share will be equal to the lesser of 85% of the fair market value of Edwards Lifesciences common stock on the effective date of subscription or 85% of the fair market value of Edwards Lifesciences common stock on the date of purchase. Purchases will be made quarterly. There will be 325,000 shares reserved for issuance under this Plan.
Transition Options for Salaried Exempt Employees
Edwards Lifesciences has determined that it will facilitate the transition of certain longer service salaried exempt employees out of the Baxter Pension Plan by offering additional stock options to salaried exempt employees who meet specific age and service criteria. Transition stock options will be provided to five groups of salaried exempt employees. Eligible employees will receive an annual grant as described below, until the earlier of when the employee reaches age 65 or terminates employment. The options will have a ten year term with three year vesting.
Employees with 75 or more "points" (as determined under the terms of the Pension Plan explained on page 52) as of the distribution date will receive an annual transition option grant equal in value to 8% of the participant's eligible compensation (based on a Black Scholes valuation of the options as of the distribution date).
Employees with 70-74 "points" as of the distribution date will receive an annual transition option grant equal in value to 6% of the participant's eligible compensation.
Employees with 65-69 "points" as of the distribution date will receive an annual transition option grant equal in value to 5.5% of the participant's eligible compensation.
Employees with 60-64 "points" and at least 10 years of "benefit service" (as determined under the terms of the Pension Plan explained on page 56) as of the distribution date will receive an annual transition option grant equal in value to 4% of the participant's eligible compensation.
Employees with 55-59 "points" and at least 10 years of "benefit service" (as determined under the terms of the Pension Plan explained on page 56) as of the distribution date will receive an annual transition option grant equal in value to 3.5% of the participant's eligible compensation.
Initial Stock Option Grant for Salaried Employees Worldwide
Edwards Lifesciences will be awarding each salaried exempt and each salaried non-exempt employee [250] Edwards Lifesciences stock options. This is a one-time stock option grant. The options will have a ten year term and three year vesting.
Employee Stock Purchase Plan for Employees Outside the United States
Employees outside the United States are also eligible to participate in an Employee Stock Purchase Plan. The terms of that plan mirror the stock plan available to United States employees. There will be 50,000 shares reserved for issuance under this plan.
Initial Stock Grant for Hourly Employees Outside the United States
As noted above, hourly employees within the United States will receive a one-time contribution of [50] shares of Edwards Lifesciences common stock to be held in a special account under the Edwards Lifesciences Retirement Plan. Hourly employees outside the United States will also receive an identical contribution where permitted by local law. In these jursidictions where it is not permitted hourly employees will receive a one time cash contribution which will be allocated to each employee's retirement plan account where permitted. These contributions will be immediately vested. Whether those shares can be allocated to the local retirement plan for those employees will be determined on a country-by-country basis.
Other Retirement Plans for Employees Outside the United States
Various other retirement plans will be offered to Edwards Lifesciences employees outside the United States according to the terms of local law and as supplemented by Edwards Lifesciences.
SECURITY OWNERSHIP OF EDWARDS LIFESCIENCES
The following table sets forth the beneficial ownership of Edwards Lifesciences common stock immediately following the distribution date based on an assumed exchange ratio of [five] to one by each of Edwards Lifesciences' directors, its Chief Executive Officer and the executive officers who are expected to be Edwards Lifesciences' four most highly compensated executive officers in 2000 and all directors and executive officers as a group, based upon information available to Baxter concerning ownership of shares of Baxter common stock on January 31, 2000. The mailing address of each of these individuals is c/o Edwards Lifesciences Corporation, 17221 Red Hill Avenue, Irvine, California 92614. Immediately following the distribution date, none of these directors and executive officers will individually own more than 1% of the outstanding Edwards Lifesciences common stock, and as a group all of these directors and executive officers will not cumulatively own more than 1% of the outstanding Edwards Lifesciences common stock. Except as otherwise noted, each individual has sole investment and voting power with respect to the shares listed.
Number of Shares
Projected to be
Name Beneficially Owned
---- ------------------
Michael A. Mussallem.............................. [57,213](1)
Vernon R. Loucks Jr............................... [151,557](2)
Philip M. Neal.................................... [-0-]
David E.I. Pyott.................................. [-0-]
Director..........................................
Director..........................................
Director..........................................
Anita B. Bessler.................................. [18,943]
Stuart L. Foster.................................. [23,701]
Bruce J. Bentcover................................ [-0-]
Bruce P. Garren................................... [-0-]
All directors and executive officers as a group
(16 persons)..................................... [308,078](1)(2)
|
(1) Includes shares held in joint tenancy with spouse over which the named
individual shares voting or investment power as follows: Mr. Mussallem
[5,339] and all directors and executive officers as a group--[5,755].
(2) Includes [750] shares not held directly by Mr. Loucks but held by his
spouse.
Based on ownership of Baxter common stock as of December 31, 1999, the following entity is expected to be a beneficial owner of five percent or more of Edwards Lifesciences' common stock:
Percent
Projected Amount of of
Name and Address of Beneficial Owner Beneficial Ownership Class
------------------------------------ -------------------- -------
Wellington Management Company, LLP (1)
75 State Street
Boston, Massachusetts 02109 [2,994,498] 5.15%
|
(1) Based solely on information contained in the Schedule 13G filed with the SEC by Wellington Management Company, LLP ("Wellington") on its own behalf, on February 11, 2000.
No other person is projected to own beneficially more than 5% of the outstanding Edwards Lifesciences common stock immediately following the distribution date.
DESCRIPTION OF EDWARDS LIFESCIENCES CAPITAL STOCK
Authorized Capital Stock
The authorized capital stock of Edwards Lifesciences will consist of 350,000,000 shares of common stock, par value $1.00 per share, and 50,000,000 shares of preferred stock, par value $.01 per share. Baxter will not issue any shares of Edwards Lifesciences preferred stock in connection with the distribution. Based on the number of shares of Baxter common stock outstanding as of December 31, 1999, Baxter will issue up to approximately [58,039,903] shares of Edwards Lifesciences common stock to Baxter stockholders in the distribution. All of the shares of Edwards Lifesciences common stock issued in the distribution will be validly issued, fully paid and non-assessable. The following is a summary description of the capital stock of Edwards Lifesciences. For more complete information, you should read the proposed forms of the amended and restated certificate of incorporation and amended and restated bylaws of Edwards Lifesciences that are included as exhibits to the registration statement of which this information statement is a part.
Edwards Lifesciences Common Stock
Edwards Lifesciences stockholders are entitled to one vote for each share of common stock held by that stockholder on all matters submitted to a vote of stockholders. A majority of the votes cast is required for all actions to be taken by stockholders, except for the election of directors which requires a plurality of the votes cast, and amendments of certain provisions of the certificate of incorporation and bylaws as described below under "Certain Anti-Takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law--Certificate of Incorporation and Bylaws--Amendment of Certain Provisions of the Certificate of Incorporation and Bylaws."
Edwards Lifesciences stockholders will not have cumulative voting rights in the election of directors. Edwards Lifesciences stockholders will not have any preemptive, subscription, redemption, sinking fund or conversion rights. Edwards Lifesciences stockholders are entitled to the dividends that may be declared by the Edwards Lifesciences board out of funds legally available for dividends, subject to preferences that may apply to holders of any outstanding shares of Edwards Lifesciences preferred stock. If there is a liquidation, dissolution or winding-up of Edwards Lifesciences, Edwards Lifesciences will distribute the assets that are legally available for distribution to stockholders ratably among the holders of Edwards Lifesciences common stock outstanding at that time, subject to prior distribution rights of creditors and to the preferential rights of any outstanding shares of Edwards Lifesciences preferred stock.
Edwards Lifesciences Preferred Stock
Under the Edwards Lifesciences certificate of incorporation, the Edwards Lifesciences board is authorized to provide for the issuance of Edwards Lifesciences preferred stock, in one or more series. The Edwards Lifesciences board is authorized to determine the designations, voting powers, preferences and rights of any series of preferred stock, and any qualifications, limitations or restrictions of any series of preferred stock. The Edwards Lifesciences board expects to designate a series of preferred stock in connection with the proposed rights agreement described below.
Edwards Lifesciences Rights Agreement
Prior to the distribution, Edwards Lifesciences expects that its board will adopt a rights agreement between Edwards Lifesciences and EquiServe Trust Company, N.A., as rights agent. If adopted, the board will cause Edwards Lifesciences to issue one preferred share purchase right with each share of Edwards Lifesciences common stock issued at the close of business on the record date for the distribution. Each right will entitle the registered holder to purchase from Edwards Lifesciences one one-hundredth of a share of Series A Junior Participating Preferred Stock for $[ ], subject to the adjustments specified in the rights agreement. The terms of the rights will be set forth in the rights agreement. The description set forth below is intended as a summary of the rights and the rights agreement. For more complete information, you should read the form of rights agreement that is included as an exhibit to the registration statement of which this information statement is a part.
The rights become exercisable upon the earliest to occur of:
. 10 days after the first public announcement that any person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding shares of Edwards Lifesciences common stock, subject to certain exceptions (an "Acquiring Person"); and
. 10 business days, unless delayed by the board, after the commencement by any person of a tender or exchange offer if, upon the consummation of the tender or exchange offer, that person would be the beneficial owner of 15% or more of the outstanding shares of Edwards Lifesciences common stock.
The earliest of the dates specified in the preceding sentence is called the "Rights Distribution Date."
Until the rights become exercisable, they will only be represented by the stock certificates for the Edwards Lifesciences common stock and will not trade independently, but only with the associated shares of Edwards Lifesciences common stock. If the rights become exercisable, separate certificates representing the rights will be distributed to holders and the rights will then trade independently from the Edwards Lifesciences common stock. Until a right is exercised, the holder of the right, as such, will have no rights as a stockholder of Edwards Lifesciences, including, without limitation, the right to vote or to receive dividends. Preferred shares purchasable upon exercise of the rights will not be redeemable. The rights are not exercisable until the Rights Distribution Date. The rights will expire ten years from the date of issuance, unless the expiration date is extended or unless the rights are earlier redeemed or exchanged by Edwards Lifesciences, as described below.
Because of the nature of the dividend, liquidation and voting rights of the Series A preferred stock, the value of one one-hundredth interest in a share of Series A preferred stock purchasable upon exercise of each right should approximate the value of one share of Edwards Lifesciences common stock. Each preferred share will be entitled to a minimum preferential quarterly dividend payment of $1 per share and an aggregate dividend of 100 times the dividend declared per share of Edwards Lifesciences common stock. If there is a liquidation of Edwards Lifesciences, the holders of the preferred shares will be entitled to a minimum preferential liquidation payment of $100 per share. Each preferred share will have 100 votes and will vote together with the Edwards Lifesciences common stock. Finally, if there is any merger, consolidation or other transaction in which shares of Edwards Lifesciences common stock are exchanged, each preferred share will be entitled to receive 100 times the amount received per share of Edwards Lifesciences common stock. Edwards Lifesciences will not issue fractional shares of preferred stock, other than fractions that are integral multiples of one one-hundredth of a share of preferred stock, which may, at Edwards Lifesciences election, be evidenced by depositary receipts. In lieu of fractional shares, an adjustment in cash will be made based on the market price of the preferred shares on the last trading day prior to the date of exercise. The rights are protected by customary anti-dilution provisions.
If any person or group of affiliated or associated persons becomes an Acquiring Person, as defined in the rights agreement, each holder of a right, other than rights beneficially owned by the Acquiring Person which will be voided, will have the right to receive upon exercise of the right the number of shares of Edwards Lifesciences common stock having a market value of two times the exercise price of the right. If Edwards Lifesciences is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold after a person or group of affiliated or associated persons has become an Acquiring Person, each holder of a right will have the right to receive, upon the exercise of the right, the number of shares of common stock of the acquiring company that at the time of the transaction will have a market value of two times the exercise price of the right.
At any time after any person or group of affiliates or associated persons becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of Edwards Lifesciences common stock, the Edwards Lifesciences board may exchange the rights, other than rights that have become void, in whole or in part, at an exchange ratio of one share of Edwards Lifesciences common stock, or one one-hundredth of a preferred share, or of a share of a class or series of Edwards Lifesciences preferred stock having equivalent rights, preferences and privileges, per right, subject to adjustment.
In general, Edwards Lifesciences may redeem the rights in whole, but not in part, at a price of $.01 per right at any time until ten days following the first public announcement that a person or group of affiliated or associated persons has become an Acquiring Person. Immediately upon the board's authorization of a redemption, the rights will terminate and the only right of the holders of the rights will be to receive the redemption price.
The terms of the rights may be amended by the Edwards Lifesciences board without the consent of the holders of the rights. However, from and after such time as any person or group of affiliated or associated persons becomes an Acquiring Person, the Edwards Lifesciences board may not amend the terms of the rights in a manner adversely affecting the interests of the holders of the rights.
The rights will have an anti-takeover effect because the rights will cause substantial dilution to a person or group that attempts to acquire Edwards Lifesciences on terms not approved by the Edwards Lifesciences board. The rights should not interfere with any merger or other business combination approved by the Edwards Lifesciences board because the rights may be redeemed by Edwards Lifesciences until the tenth day following the first public announcement that a person or group has become an Acquiring Person.
CERTAIN ANTI-TAKEOVER EFFECTS OF
PROVISIONS OF EDWARDS LIFESCIENCES' CERTIFICATE OF INCORPORATION AND
BYLAWS AND OF DELAWARE LAW
Certificate of Incorporation and Bylaws
Edwards Lifesciences' certificate of incorporation and bylaws contain provisions that could make it more difficult to acquire Edwards Lifesciences by means of a tender offer, proxy contest or otherwise. The description set forth below is intended as a summary only; for more complete information you should read the proposed forms of the certificate of incorporation and the bylaws that are included as exhibits to the registration statement, of which this information statement is a part.
Classified Board of Directors
Edwards Lifesciences' certificate of incorporation provides that the Edwards Lifesciences directors, other than those who may be elected by the holders of any series of preferred stock under specified circumstances, will be divided into three classes of directors, with the classes to be as nearly equal in number as possible, and with each class serving a staggered term. Immediately after the distribution, the Edwards Lifesciences board will consist of the persons referred to in "Management--Directors." The certificate of incorporation provides that the term of office of the first class will expire at the 2001 annual meeting of stockholders. The term of office of the second class will expire at the 2002 annual meeting of stockholders. The term of office of the third class will expire at the 2003 annual meeting of stockholders.
The classification of directors will make it more difficult for stockholders to change the composition of the Edwards Lifesciences board. At least two annual meetings of stockholders, instead of one, will be required to change a majority of the Edwards Lifesciences board. Such a delay may help ensure that the Edwards Lifesciences board, if confronted by a stockholder's attempt to force a stock repurchase at a premium above market price, a proxy contest or an extraordinary corporate transaction, would have sufficient time to review the proposal as well as any available alternatives to the proposal and to act in what they believe to be the best interests of the stockholders. However, the classification provisions could have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to obtain control of Edwards Lifesciences, even though such an attempt might be beneficial to Edwards Lifesciences and its stockholders. In addition, the classification of the Edwards Lifesciences board could increase the likelihood that incumbent directors will retain their positions. Finally, because the classification provisions may discourage accumulations of large blocks of Edwards Lifesciences' stock by purchasers whose objective is to take control of Edwards Lifesciences and remove a majority of the Edwards Lifesciences board, the classification of the Edwards
Lifesciences board could reduce the likelihood of fluctuations in the market price of Edwards Lifesciences common stock that might result from accumulations of large blocks. Accordingly, stockholders could be deprived of certain opportunities to sell their shares of Edwards Lifesciences common stock at a higher market price than they might otherwise obtain.
Number of Directors; Filling Vacancies; Removal
Edwards Lifesciences' certificate of incorporation provides that the Edwards Lifesciences board will fix the number of Edwards Lifesciences directors, subject to any rights of holders of Edwards Lifesciences preferred stock to elect additional directors under specific circumstances. In addition, the certificate of incorporation provides that any vacancy that results from an increase in the number of directors or for any other reason may be filled only by a majority of directors then in office, subject to any rights of holders of Edwards Lifesciences preferred stock. Accordingly, absent an amendment to the Edwards Lifesciences certificate of incorporation, the Edwards Lifesciences board could prevent a stockholder from increasing the size of the Edwards Lifesciences board and filling the newly created directorships with that stockholder's own nominees. Under Delaware General Corporation Law, unless otherwise provided in the certificate of incorporation, directors serving on a classified board may be removed by the stockholders only for cause.
No Stockholder Action by Written Consent; Special Meetings
Edwards Lifesciences' certificate of incorporation prohibits stockholder action by written consent in lieu of a meeting. The bylaws provide that special meetings of the stockholders may be called only by the chairman of the board or the secretary or by resolution of the directors, and shall be called upon a request signed by a majority of the directors.
The provisions of Edwards Lifesciences' certificate of incorporation prohibiting stockholder action by written consent may have the effect of delaying consideration of a stockholder proposal until the next annual meeting unless a special meeting is called at the request of a majority of the board. These provisions would also prevent the holders of a majority of the voting power of the voting stock from unilaterally using the written consent procedure to take stockholder action. Moreover, a stockholder could not force stockholder consideration of a proposal over the opposition of the Edwards Lifesciences board by calling a special meeting of stockholders prior to the time a majority of the board believes such consideration to be appropriate.
Advance Notice of Stockholder Nominations and Stockholder Proposals Required
The Edwards Lifesciences bylaws establish an advance notice procedure for stockholders to make nominations of candidates for election as directors, or bring other business before an annual meeting of stockholders.
The advance notice procedures provide that the only persons who are eligible for election as Edwards Lifesciences directors are those who are nominated by, or at the direction of, the Edwards Lifesciences board, or by a stockholder who has given timely written notice to the secretary prior to the meeting at which directors are to be elected. The advance notice procedures provide that at an annual meeting the only business that may be conducted is that which has been brought before the meeting by, or at the direction of, the Edwards Lifesciences board or by a stockholder who has given timely written notice to Edwards Lifesciences' secretary of that stockholder's intention to bring that business before the meeting. Under the advance notice procedures, for a stockholder to timely provide notice of any stockholder nominations at an annual meeting, Edwards Lifesciences must receive the notice not less than 75 days nor more than 100 days prior to the first anniversary of the previous year's annual meeting. However, if Edwards Lifesciences advances the date of any other annual meeting by more than 30 days from the anniversary date of the meeting, a stockholder must provide notice not later than the 10th day after Edwards Lifesciences mails or publicly announces the notice of the date of the annual meeting. Under the advance notice procedures, for a stockholder to timely provide notice of any stockholder nominations at a special meeting at which directors are to be elected, Edwards Lifesciences must receive the notice not less than 75 days nor more than 100 days prior to the special meeting or by the 10th day after Edwards Lifesciences publicly announces the date of the special meeting.
A stockholder's notice to Edwards Lifesciences proposing to nominate a person for election as a director must contain certain information including, without limitation, the name and address of the nominating stockholder, the class and number of shares of stock of Edwards Lifesciences that are owned by that stockholder and all information regarding the proposed nominee that would be required to be included in a proxy statement soliciting proxies for the proposed nominee. A stockholder's notice to Edwards Lifesciences relating to other proposed business must contain certain information about the proposed business and about the proposing stockholder, including, without limitation, a brief description of the business, the reasons for conducting the business at the meeting, the name and address of the proposing stockholder, the class and number of shares of stock of Edwards Lifesciences beneficially owned by such stockholder and any material interest of that stockholder in the business so proposed. If the chairman of the board or other officer presiding at the meeting determines that a person was not nominated or other business was not properly brought before the meeting, that person will not be eligible for election as a director or that business will not be conducted at the meeting, as the case may be.
The advance notice procedures regarding election of directors afford Edwards Lifesciences' board an opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the Edwards Lifesciences board regarding other proposed business, provide a more orderly procedure for conducting annual meetings of stockholders. In addition, these advance notice procedures will provide the Edwards Lifesciences board with an opportunity to inform stockholders in advance of a meeting, to the extent deemed necessary or desirable by the Edwards Lifesciences board, of any business proposed to be conducted at the meeting and any board recommendation regarding the proposed business, so that stockholders can better decide whether to attend the meeting or to grant a proxy regarding the disposition of the proposed business.
Although the bylaws do not give the Edwards Lifesciences board any power to approve or disapprove of stockholder nominations for the election of directors or other proposals, they may preclude a contest for the election of directors or the consideration of stockholder proposals if the proper procedures are not followed. In addition, these procedures may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, without regard to whether consideration of those nominees or proposals might be harmful or beneficial to Edwards Lifesciences and its stockholders.
Amendment of Certain Provisions of the Certificate of Incorporation and Bylaws
Under Delaware General Corporation Law, the stockholders have the right to adopt, amend or repeal the bylaws and, with the approval of the board of directors, the certificate of incorporation of a corporation. In addition, under Delaware General Corporation Law, if the certificate of incorporation so provides, the bylaws may be adopted, amended or repealed by the board of directors. Edwards Lifesciences' certificate of incorporation provides that the affirmative vote of the holders of at least 80% of the voting power of the outstanding shares of voting stock, voting together as a single class, is required to amend provisions of the certificate of incorporation relating to:
. the prohibition of stockholder action without a meeting;
. the number, election and term of Edwards Lifesciences' directors;
. super-majority voting requirements to amend the charter; and
. the issuance of rights.
The bylaws may be amended by the Edwards Lifesciences board or by the affirmative vote of the holders of at least 80% of the voting power of the outstanding shares of voting stock, voting together as a single class. These super-majority voting requirements will have the effect of making more difficult any amendment by stockholders of the bylaws or of any of the provisions of the certificate of incorporation described above, even if a majority of Edwards Lifesciences' stockholders believe that an amendment would be in their best interests.
Delaware Law
Anti-Takeover Legislation
Section 203 of the Delaware General Corporation Law provides that, subject to the exceptions specified in that section, a corporation may not engage in any business combination with any interested stockholder for a three-year period following the time that such stockholder becomes an interested stockholder unless:
. prior to that time, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares); or
. at or subsequent to that time, the business combination is approved by the board of directors of the corporation and by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
Except as specified in Section 203 of the Delaware General Corporation Law, an "interested stockholder" is defined to include:
. any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation, at any time within three years immediately prior to the relevant date; and
. the affiliates and associates of any person described in the preceding clause.
Under certain circumstances, Section 203 of the Delaware General
Corporation Law makes it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period. It is anticipated that the provisions of
Section 203 may encourage persons interested in acquiring Edwards Lifesciences
to negotiate in advance with the Edwards Lifesciences board, since those
persons could avoid the stockholder approval requirement if a majority of the
directors then in office approves either the business combination or the
transaction that results in the stockholder becoming an interested
stockholder.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF EDWARDS LIFESCIENCES DIRECTORS
AND OFFICERS
Limitation of Liability of Directors
Edwards Lifesciences' certificate of incorporation provides that a director of Edwards Lifesciences will not be personally liable to Edwards Lifesciences or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to Edwards Lifesciences or its stockholders;
. for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, which concerns unlawful payments of dividends, stock purchases or redemptions; or
. for any transaction from which the director derived an improper personal benefit.
While Edwards Lifesciences' certificate of incorporation provides directors with protection from awards for monetary damages for breaches of their duty of care, it does not eliminate their duty of care. Accordingly, the certificate of incorporation will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director's breach of his or her duty of care. The provisions of the certificate of incorporation described above apply to an officer of Edwards Lifesciences only if he or she is a director of Edwards Lifesciences and is acting in his or her capacity as director, and do not apply to officers of Edwards Lifesciences who are not directors.
Indemnification of Directors and Officers
The Edwards Lifesciences certificate of incorporation provides that each person who is, or was, or has agreed to become a director or officer of Edwards Lifesciences, and each person who serves, or may have served, at the request of Edwards Lifesciences as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, will be indemnified by Edwards Lifesciences to the fullest extent permitted from time to time by Delaware law, as the same exists or may hereafter be amended. Directors and officers will not be indemnified with respect to an action commenced by such directors or officers against Edwards Lifesciences or by such directors or officers as a derivative action.
The certificate of incorporation of Edwards Lifesciences provides that the right to indemnification and the payment of expenses conferred in the certificate of incorporation will not be exclusive of any other right which any person may have or may in the future acquire under any agreement, vote of stockholders, vote of disinterested directors or otherwise. The certificate of incorporation permits Edwards Lifesciences to maintain insurance on behalf of any person who is, or was, a director, officer, employee or agent of Edwards Lifesciences, or is serving at the request of Edwards Lifesciences as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not Edwards Lifesciences would have the power to indemnify such person against that liability under the certificate of incorporation or Delaware law.
Edwards Lifesciences intends to obtain directors and officers liability insurance providing coverage to its directors and officers.
EDWARDS LIFESCIENCES' 2001 ANNUAL MEETING OF STOCKHOLDERS
The Edwards Lifesciences bylaws provide that an annual meeting of stockholders will be held each year on a date specified by the Edwards Lifesciences board of directors. The first annual meeting of Edwards Lifesciences stockholders after the distribution is expected to be held on May 10, 2001. In order to be considered for inclusion in Edwards Lifesciences' proxy materials for the 2001 annual stockholders meeting, any proposals by stockholders must be received at Edwards Lifesciences' principal executive offices at 17221 Red Hill Avenue, Irvine, California 92614, prior to January 10, 2001. Edwards Lifesciences anticipates commencing the mailing of proxies for the 2001 annual stockholders meeting on or about March 9, 2001. In addition, stockholders at the Edwards Lifesciences 2001 annual meeting may consider stockholder proposals or nominations brought by a stockholder of record on the record date for the 2001 annual meeting, who is entitled to vote at such annual meeting and who has complied with the advance notice procedures established by the Edwards Lifesciences bylaws. A stockholder proposal or nomination intended to be brought before the Edwards Lifesciences 2001 annual meeting must be received by Edwards Lifesciences' secretary on or after January 30, 2001 and on or prior to February 24, 2001. See "Certain Anti- Takeover Effects of Provisions of Edwards Lifesciences' Certificate of Incorporation and Bylaws and of Delaware Law--Certificate of Incorporation and Bylaws."
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, of which this information statement constitutes a part, under the Securities Exchange Act of 1934 with respect to the Edwards Lifesciences common stock being received by Baxter stockholders in the distribution. This information statement does not contain all of the information set forth in the registration statement. For further information with respect to our business and the common stock being received by Baxter stockholders in the distribution, please refer to the registration statement. While we have provided a summary of the material terms of the contents of certain contracts and other documents, the summary does not describe all of the details of the contracts and other documents. In each instance where a copy of a contract or other document has been filed as an exhibit to the registration statement, please refer to the registration statement. Each statement in this information statement regarding a contract or
other document is qualified in all respects by such exhibit. You may read and copy all or any portion of the registration statement at the offices of the SEC at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Public Reference Section of the SEC, Washington, D.C. 20549 upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference rooms. The SEC maintains a Web site, http://www.sec.gov, that contains reports, proxy and information statements and other information regarding registrants, such as Baxter and Edwards Lifesciences, that file electronically with the SEC. Upon completion of this offering, Edwards Lifesciences will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference rooms and the SEC's Web site.
Edwards Lifesciences intends to furnish its stockholders with annual reports containing consolidated financial statements (beginning with fiscal year 2000) audited by independent accountants.
You should rely only on the information contained in this information statement and other documents referred to in this information statement. Baxter and Edwards Lifesciences have not authorized anyone to provide you with information that is different. This information statement is being furnished by Baxter solely to provide information to Baxter stockholders who will receive Edwards Lifesciences common stock in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any securities of Baxter or Edwards Lifesciences. Baxter and Edwards Lifesciences believe that the information presented herein is accurate as of the date hereof. Changes will occur after the date hereof, and neither Baxter nor Edwards Lifesciences will update the information except to the extent required in the normal course of their respective public disclosure practices and as required pursuant to the federal securities laws.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Report of Independent Accountants.......................................... F-2
Combined Balance Sheets.................................................... F-3
Combined Statements of Income.............................................. F-4
Combined Statements of Cash Flows.......................................... F-5
Combined Statements of Equity and Comprehensive Income..................... F-6
Notes to Edwards Lifesciences Corporation Combined Financial Statements.... F-7
Schedule II -- Valuation and Qualifying Accounts........................... S-1
|
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders of
Baxter International Inc.
In our opinion, the combined financial statements listed on the accompanying index present fairly, in all material respects, the financial position of Edwards Lifesciences Corporation (the Company, a division of Baxter International Inc.) at December 31, 1999, 1998 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related combined financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 18, 2000
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED BALANCE SHEETS
(in millions)
December 31,
--------------
1999 1998
------ ------
Current assets
Accounts receivable, net of allowances of $8 million at
December 31, 1999 and December 31, 1998..................... $ 133 $ 141
Other receivables............................................ 22 28
Inventories.................................................. 182 156
Short-term deferred income taxes............................. 9 14
Prepaid expenses............................................. 10 14
------ ------
Total current assets....................................... 356 353
------ ------
Property, plant and equipment
Property, plant and equipment................................ 496 480
Accumulated depreciation and amortization.................... (270) (253)
------ ------
Net property, plant and equipment.......................... 226 227
------ ------
Other assets
Goodwill and other intangibles............................... 839 886
Other........................................................ 16 17
------ ------
Total other assets......................................... 855 903
------ ------
Total assets............................................. $1,437 $1,483
====== ======
Current liabilities
Accounts payable and accrued liabilities..................... $ 156 $ 157
------ ------
Total current liabilities.................................. 156 157
------ ------
Other noncurrent liabilities................................... 57 55
Contingencies and commitments..................................
Equity
Retained earnings............................................ 418 336
Investments by and advances from (payments to) Baxter
International Inc., net..................................... 833 960
Accumulated other comprehensive income (loss)................ (27) (25)
------ ------
Total equity............................................... 1,224 1,271
------ ------
Total liabilities and equity............................. $1,437 $1,483
====== ======
|
The accompanying notes are an integral part of these combined financial statements.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED STATEMENTS OF INCOME
(in millions)
Years ended
December 31,
---------------
1999 1998 1997
---- ---- ----
Net sales..................................................... $905 $865 $879
Costs and expenses
Cost of goods sold.......................................... 460 455 455
Cost of goods sold--transactions with Baxter................ 6 11 8
Marketing and administrative expenses....................... 189 187 168
Marketing and administrative expenses--transactions with
Baxter..................................................... 44 35 43
Research and development expenses........................... 41 40 41
Research and development expenses--transactions with Baxter. 14 16 12
In-process research and development......................... -- -- 132
Goodwill amortization....................................... 34 34 34
Other expense (income)...................................... 4 (6) 1
---- ---- ----
Total costs and expenses...................................... 792 772 894
---- ---- ----
Income (loss) before income taxes............................. 113 93 (15)
Income tax expense............................................ 31 31 37
---- ---- ----
Net income (loss)............................................. $ 82 $ 62 ($52)
==== ==== ====
|
The accompanying notes are an integral part of these combined financial statements.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED STATEMENTS OF CASH FLOWS
(in millions)
Years ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
(Brackets denote cash outflows)
Cash flow provided from operations
Net income (loss)........................ $ 82 $ 62 $ (52)
Adjustments
Depreciation and amortization.......... 84 82 80
In-process research and development.... -- -- 132
Other.................................. 12 14 (3)
Changes in balance sheet items
Accounts receivable.................... 14 9 (6)
Inventories............................ (14) (1) 10
Accounts payable and accrued
liabilities........................... (1) 6 4
Other.................................. (1) 4 (2)
---------- ---------- ----------
Cash flow provided by operations......... 176 176 163
---------- ---------- ----------
Investment transactions
Capital expenditures..................... (42) (40) (42)
Acquisitions (net of cash received)...... (7) (12) (16)
---------- ---------- ----------
Investment transactions, net............. (49) (52) (58)
---------- ---------- ----------
Financing transactions
Investments by and advances from
(payments to)
Baxter International Inc., net.......... (127) (124) (105)
---------- ---------- ----------
Financing transactions, net.............. (127) (124) (105)
---------- ---------- ----------
Change in cash and equivalents............. -- -- --
Cash and equivalents at beginning of
period.................................... -- -- --
---------- ---------- ----------
Cash and equivalents at end of period...... $ -- $ -- $ --
========== ========== ==========
Disclosure of noncash activity
Acquisition of business with Baxter
International Inc. common stock......... $ -- $ -- $ 223
========== ========== ==========
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The accompanying notes are an integral part of these combined financial statements.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(in millions)
Investments by
and advances
from (payments Accumulated
to) Baxter other
Total Retained International comprehensive Comprehensive
equity earnings Inc., net income (loss) Income (loss)
------ -------- -------------- ------------- -------------
Balance at December 31,
1996.................. $1,284 $326 $ 966 $ (8)
Net loss............. (52) (52) $(52)
----
Other comprehensive
income (loss):
Currency
translation
adjustments....... (16)
Unrealized net loss
on marketable
security, net of
tax benefit of $2. (3)
----
Other
comprehensive
income (loss)... (19) (19) (19)
----
Investments by and
advances from
(payments to) Baxter
International Inc.,
net:
Cash............... (105) (105)
Acquisition of
business with
Baxter
International Inc.
common stock...... 223 223
------ ---- ----- ----
Comprehensive income
(loss)................ $(71)
====
Balance at December 31,
1997.................. 1,331 274 1,084 (27)
Net income........... 62 62 $ 62
----
Other comprehensive
income:
Currency
translation
adjustments....... --
Unrealized net gain
on marketable
security, net of
tax of $1......... 2
----
Other
comprehensive
income.......... 2 2 2
----
Investments by and
advances from
(payments to) Baxter
International Inc.,
net................. (124) (124)
------ ---- ----- ----
Comprehensive income... $ 64
====
Balance at December 31,
1998.................. 1,271 336 960 (25)
Net income........... 82 82 $ 82
Other comprehensive
income:
Currency
translation
adjustments....... (1)
Unrealized net loss
on marketable
security, net of
tax benefit of $1. (1)
----
Other
comprehensive
income (loss)... (2) (2) (2)
----
Investments by and
advances from
(payments to) Baxter
International Inc.,
net................. (127) (127)
------ ---- ----- ---- ----
Comprehensive income... $ 80
====
Balance at December 31,
1999.................. $1,224 $418 $ 833 $(27)
====== ==== ===== ====
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The accompanying notes are an integral part of these combined financial statements.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
On July 11, 1999, the board of directors of Baxter International Inc. (Baxter) approved a plan to spin off its CardioVascular business to Baxter stockholders. Management expects that shares of the new cardiovascular company, Edwards Lifesciences Corporation (Edwards Lifesciences or the company,) will be distributed to Baxter stockholders (the distribution) in the first quarter of 2000 and that the spin-off will be tax-free. The distribution will result in Edwards Lifesciences operating as an independent entity with publicly traded common stock.
Edwards Lifesciences is a global leader in providing a comprehensive line of products and services to treat late-stage cardiovascular disease. Edwards Lifesciences' sales are categorized in four main product areas: (a) cardiac surgery, (b) critical care, (c) vascular and (d) perfusion products and services. In addition, Edwards Lifesciences also offers a diverse grouping of product lines comprised mostly of pharmaceuticals and selected distributed products. Edwards Lifesciences' cardiac surgery portfolio is comprised of products relating to heart valve therapy, mechanical cardiac assist, and cannulae and cardioplegia products used during open-heart surgery. The critical care product category primarily includes hemodynamic monitoring systems used to measure a patient's heart function in surgical and intensive care settings. The vascular product area includes balloon catheter-based products, surgical clips and inserts, angioscopy equipment, artificial implantable grafts, and an endovascular system used for less-invasive abdominal aortic aneurysms. The perfusion products and services area includes disposable products used during cardiopulmonary bypass procedures and contract perfusion services.
Baxter will have no ownership interest in Edwards Lifesciences after the spin-off, but will continue to conduct business pursuant to various agreements, which are outlined in Note 7. However, unless released by third parties, Baxter will remain liable for certain lease and other obligations and liabilities that are transferred to and assumed by Edwards Lifesciences. Edwards Lifesciences will be obligated by the reorganization agreement to indemnify Baxter against liabilities related to those transferred obligations and liabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the reader in understanding and evaluating the combined financial statements. These policies are in conformity with accounting principles generally accepted in the United States (GAAP) and have been applied consistently in all material respects. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and related disclosures. Actual results could differ from those estimates.
Basis of presentation
Baxter does not account for its businesses on the basis of separate legal entities. The specific product lines included in Baxter's CardioVascular business are described in Note 1 above. The accompanying combined financial statements include those assets, liabilities, revenues, expenses and cash flows directly attributable to the operations associated with the product lines described above. The combined financial statements have been prepared using Baxter's historical bases in the assets and liabilities and the historical results of operations of the CardioVascular business, operated primarily as a division of Baxter, except for the accounting for income taxes which is further discussed in Note 10. All material intercompany balances have been eliminated. The combined financial statements include allocations of certain Baxter corporate assets, liabilities and expenses to Edwards Lifesciences. These amounts have been allocated to the company on the basis that is considered by management to reflect most fairly or reasonably the utilization of the services provided to or the benefit obtained by the company. Typical measures and activity indicators used for allocation purposes include headcount, sales, payroll expense, or the specific level of activity related to the allocated item. Management believes the methods used to
allocate amounts are reasonable. However, the financial information included herein does not necessarily reflect what the financial position, results of operations and cash flows of the company would have been had it operated as a stand-alone public entity during the periods covered, and may not be indicative of future operations, cash flows or financial position. The combined financial statements do not include an allocation of Baxter's consolidated debt and interest expense.
Estimated incremental selling, general and administrative costs associated with being an independent public company total approximately $25 million on an annual basis. The following is a summary of the estimated annual incremental costs (pretax) by significant function:
(in millions)
Accounting, tax and legal.................................................. $ 8
Insurance and risk management.............................................. 4
Human resources............................................................ 7
Treasury, stockholder relations and other costs............................ 6
---
Total...................................................................... $25
===
|
Estimated incremental annual pretax interest expense is $29 million. The company's debt agreements are not yet finalized. This management estimate is based on the incurrence of $520 million of debt at a weighted-average interest rate of 5.6%.
Fiscal year of international operations
Certain operations outside the United States and its territories are included in the combined financial statements on the basis of fiscal years ending November 30 in order to facilitate timely combination.
Foreign currency translation
The results of operations for non-U.S. subsidiaries, other than those located in highly inflationary countries, are translated into U.S. dollars using the average exchange rates during the year, while assets and liabilities are translated using period-end rates. Resulting translation adjustments are recorded as currency translation adjustments within other comprehensive income. Where foreign affiliates operate in highly inflationary economies, non-monetary amounts are remeasured at historical exchange rates while monetary assets and liabilities are remeasured at the current rate with the related adjustments reflected in the combined statements of income.
Revenue recognition
The company's practice is to recognize revenues from product sales when title transfers and for services as performed. For certain products, the company maintains consigned inventory at customer locations. For these products, revenue is recognized at the time the company is notified that the inventory has been used by the customer.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market value. Market value for raw materials is based on replacement costs and, for other inventory classifications, on net realizable value.
Inventories consisted of the following:
December
31,
---------
1999 1998
---- ----
(in
millions)
Raw materials......................................................... $ 29 $ 33
Work in process....................................................... 28 36
Finished products..................................................... 125 87
---- ----
Total inventories..................................................... $182 $156
==== ====
|
Reserves for excess and obsolete inventory were approximately $12 million at December 31, 1999 and $10 million at December 31, 1998.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation and amortization are principally calculated for financial reporting purposes on the straight-line method over the estimated useful lives of the related assets,
which range from 20 to 50 years for buildings and improvements and from three to 15 years for machinery and equipment. Leasehold improvements are amortized over the life of the related facility leases or the asset, whichever is shorter. Straight-line and accelerated methods of depreciation are used for income tax purposes.
Property, plant and equipment consisted of the following:
as of December 31 1999 1998
----------------- ----- -----
(in
millions)
Land.............................................................. $ 27 $ 28
Buildings and leasehold improvements.............................. 79 82
Machinery and equipment........................................... 281 274
Equipment with customers.......................................... 96 81
Construction in progress.......................................... 13 15
----- -----
Total property, plant and equipment, at cost...................... 496 480
Accumulated depreciation and amortization......................... (270) (253)
----- -----
Net property, plant and equipment................................. $ 226 $ 227
===== =====
|
Depreciation expense was $37 million in 1999, $35 million in 1998, and $33 million in 1997. Repairs and maintenance expense was $8 million in 1999, $10 million in 1998 and $7 million in 1997.
Goodwill and other intangible assets
Goodwill represents the excess of cost over the fair value of net assets acquired and is amortized on a straight-line basis over estimated useful lives ranging from 15 to 40 years.
Other intangible assets include purchased patents, trademarks and other identified rights and are amortized on a straight-line basis over their legal or estimated useful lives, whichever is shorter (generally not exceeding 17 years).
Goodwill and other intangible assets are summarized as follows:
as of December 31 1999 1998
----------------- ------ ------
(in millions)
Goodwill........................................................ $1,115 $1,116
Accumulated amortization........................................ (371) (337)
------ ------
Net goodwill.................................................... 744 779
------ ------
Other intangibles............................................... 184 184
Accumulated amortization........................................ (89) (77)
------ ------
Net other intangibles........................................... 95 107
------ ------
Goodwill and other intangibles.................................. $ 839 $ 886
====== ======
|
Management reviews the carrying amounts of goodwill and other intangibles whenever events and circumstances indicate that the carrying amounts of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit and adverse legal or regulatory developments. If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair market value. Estimated fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. For the purpose of identifying and measuring impairment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Based upon management's assessment of the future undiscounted operating cash flows of acquired businesses, the carrying values of goodwill and other intangibles at December 31, 1999, have not been impaired.
Income taxes
Edwards Lifesciences' operations were historically included in Baxter's consolidated U.S. federal and state income tax returns and in the tax returns of certain Baxter foreign subsidiaries. The provision for income taxes has been determined as if Edwards Lifesciences had filed separate tax returns under its existing structure for the periods presented. Accordingly, the effective tax rate of Edwards Lifesciences in future years could vary from its historical effective rates depending on Edwards Lifesciences' future legal structure and tax elections. All income taxes are settled with Baxter on a current basis through the "Investments by and advances from (payments to) Baxter International Inc., net" account.
Derivatives
For all periods presented, Edwards Lifesciences has been considered in Baxter's overall risk management strategy. Baxter's accounting policies with respect to derivatives are summarized below as they apply to Edwards Lifesciences.
Gains and option premiums relating to qualifying foreign currency hedges of anticipated transactions are deferred and recognized in income as offsets of gains and losses resulting from the underlying hedged transactions. Gains relating to terminations of qualifying hedges are deferred and recognized in income at the same time as the underlying hedged transactions. In circumstances where the underlying anticipated transaction is no longer expected to occur, any remaining deferred amounts are recognized immediately in income. Foreign currency contracts not qualifying for hedge treatment are marked to market at each balance sheet date with resulting gains and losses recognized in earnings. Cash flows from derivatives are classified in the same category as the cash flows from the related hedged activity. Foreign currency financial instruments are used to hedge economic risks and are not used for trading purposes.
Investments by and Advances from (payments to) Baxter International Inc., net
Investments by and advances from (payments to) Baxter International Inc., net includes common stock, additional paid-in capital and net intercompany balances with Edwards Lifesciences which will be contributed at the time of the spin-off. Baxter does not manage the activity in this account on the basis of separate legal entities. There is no distinction in this account between net investments in and net advances to Edwards Lifesciences as there was no term associated with the cash infusions and no intent or expectation that the infusions would be remitted to Baxter.
Comprehensive income (loss)
Comprehensive income (loss) encompasses all changes in equity other than those arising from transactions with stockholders, and consists of net income, currency translation adjustments and unrealized net gains and losses on marketable equity securities. The company does not provide for U.S. income taxes on foreign currency translation adjustments since it does not provide for such taxes on undistributed earnings of foreign subsidiaries. The net unrealized gain on a marketable security of $2 million for 1998 (net-of-tax) principally consisted of a reclassification adjustment for an impairment loss included in net income during the year.
Recent accounting pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement No. 133) which was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments -- Deferral of the Effective Date of FASB Statement No. 133" (Statement No. 137). Statement No. 137 deferred the effective date of Statement No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. Statement No. 133 requires that all derivatives be recorded in the balance sheet as either assets or liabilities and be measured at fair value. The accounting for changes in the fair
value of a derivative will depend on the intended use of the derivative and the resulting designation. Management is in the process of evaluating this standard and has not yet determined the future impact on the company's financial statements.
3. ACQUISITIONS
All acquisitions during the three years ended December 31, 1999 were accounted for under the purchase method. Results of operations of acquired companies are included in the company's results of operations as of the respective acquisition dates. The purchase price of each acquisition was allocated to the net assets acquired based on estimates of their fair values at the date of the acquisition. The excess of the purchase price over the fair values of the net tangible assets and liabilities and identifiable intangibles acquired was allocated to goodwill.
Research Medical, Inc.
In March 1997, Edwards Lifesciences acquired Research Medical, Inc. (Research Medical), a manufacturer of specialized products used in open-heart surgery for approximately $239 million. Approximately $223 million of the purchase price was in the form of 4,801,711 shares of Baxter International Inc. common stock, issued from treasury. As further discussed below, $132 million of the purchase price was allocated to in-process research and development (IPR&D), and, under generally accepted accounting principles, immediately expensed. Approximately $40 million and $38 million of the purchase price was allocated to existing product technology and goodwill, respectively, and is being amortized on a straight-line basis over 14 years and 20 years, respectively.
In-process Research and Development
The amount allocated to IPR&D was determined on the basis of independent appraisals using the income approach, which measures the value of an asset by the present value of its future economic benefits. Estimated cash flows for each project category were discounted to their present values at rates of return that incorporate the risk-free rate, the expected rate of inflation, and risks associated with the particular projects, including their stages of completion. Projected revenue and cost assumptions were determined considering the company's historical experience and industry trends and averages. At the date of acquisition, it was determined that the technology acquired had no alternative future use. No value was assigned to any IPR&D project unless it was probable of being further developed.
Approximately $76 million of the total IPR&D charge pertained to minimally invasive surgical (MIS) procedures, with the remainder relating principally to heparin removal technology, autologous fibrin delivery kit and sealant technologies, retrograde reprofusion system technologies and ischemic limb reperfusion system technologies. The status of development, stage of completion, assumptions, nature and timing of remaining efforts for completion, risks and uncertainties, and other key factors varied by individual project. Discount rates on individual projects ranged from 14 percent to 20 percent, with a discount rate of 16 percent used for the MIS procedures project. Material net cash inflows for the most significant projects were forecasted to commence between 1998 and 2000. Assumed research and development expenditures prior to the various dates of product introductions totaled approximately $2 million.
The products under development were at various stages of development, and substantial further research and development, pre-clinical testing and clinical trials would be required to determine their technical feasibility and commercial viability. Any delay in the development, introduction or marketing of the products under development could result either in such products being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in a shortening of their commercial lives. If the products are not completed on time, the expected returns on the investment could be significantly and unfavorably impacted.
As part of the post-acquisition integration and research and development (R&D) rationalization process, management reassessed all of Research Medical's ongoing R&D projects. Based on these subsequent analyses of the costs versus potential future benefits of continuing the Research Medical projects, several of the R&D projects in-process at acquisition date were terminated in late 1997. Such projects related principally to heparin removal technology, autologous fibrin delivery kit and sealant technologies, retrograde reprofusion system technologies and ischemic limb reperfusion system technologies. The total IPR&D charge recorded at acquisition date relating to these projects subsequently terminated totaled approximately $56 million.
With respect to the MIS procedures project, at the time of acquisition, the MIS industry was still in an embryonic state, with virtually no commercially available product offerings. It was believed that over the next several years, a significant transition from traditional surgical to MIS procedures would occur in the marketplace. Several competitors were in the process of developing products for the emerging MIS sector. While at the date of acquisition, Research Medical had introduced only a couple of basic MIS products to the marketplace, the company had a number of promising MIS products in the process of being developed. Such products under development required substantial further research and development and would require regulatory approval prior to becoming available for sale. At the date of acquisition, it was expected that net cash inflows would commence in the year after acquisition and increase significantly over the following two to five years.
The expected timetable for significant net cash inflows from the MIS procedures IPR&D has been significantly and unfavorably impacted by the effect of a significantly slower than anticipated transition from traditional surgical procedures to MIS procedures in the marketplace. While sales are currently being generated, the current and anticipated future level is significantly less than projected in the original timetable. In addition, the expected future R&D costs to be incurred to generate such future revenues are significantly more than anticipated at the time of acquisition. Management's current net present value of estimated future net cash inflows is substantially less than that estimated at acquisition date. It is currently not clear whether originally projected sales are delayed or whether the originally anticipated levels will not be achieved. Substantial research and development, and sales and marketing costs will need to be expended to achieve the projections. It is possible that, even with such substantial efforts, the MIS market will never develop to the initially anticipated size. It is also possible that management will reduce its investments in the MIS sector in the future based on its ongoing assessment of the marketplace and re- prioritization of strategic initiatives.
Acquisition reserves
Approximately $14 million of reserves were established with respect to the acquisition of Research Medical. Of this total, approximately $1 million was reserved to eliminate 17 positions at Research Medical, principally in the sales and marketing and research and development functions, and approximately $13 million was established principally to terminate certain distribution contracts relating to the acquired company. The reserves were fully utilized as of December 31, 1998 and such utilization was in accordance with the original plans.
Pro forma information (unaudited)
Had the acquisition of Research Medical taken place on January 1, 1997, combined net sales and net income would not have been materially different from the reported amounts in 1997 and, therefore, pro forma information is not presented.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
as of December 31 1999 1998
----------------- ---- ----
(in
millions)
Accounts payable, principally trade............................ $ 41 $ 44
Employee compensation and withholdings......................... 52 47
Property, payroll and other taxes.............................. 9 10
Other accrued liabilities...................................... 41 45
Other accounts payable......................................... 13 11
---- ----
Accounts payable and accrued liabilities....................... $156 $157
==== ====
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5. LEASE OBLIGATIONS
Certain facilities and equipment are leased under operating leases expiring at various dates. Most of the operating leases contain renewal options. Total expense for all operating leases was $9 million in 1999, $8 million in 1998 and $9 million in 1997.
Future minimum lease payments (including interest) under noncancelable operating leases at December 31, 1999 were as follows:
Operating
leases
-------------
(in millions)
2000........................................................ $ 8
2001........................................................ 4
2002........................................................ 3
2003........................................................ 2
2004........................................................ 2
Thereafter.................................................. --
----
Total obligations and commitments........................... $ 19
====
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6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Concentrations of credit risk
In the normal course of business, Edwards Lifesciences provides credit to customers in the health-care industry, performs credit evaluations of these customers and maintains reserves for potential credit losses which, when realized, have been within the range of management's allowance for doubtful accounts.
Foreign exchange risk management
For all periods presented, Edwards Lifesciences has been considered in Baxter's overall risk management strategy. As part of this strategy, Baxter uses certain financial instruments to reduce its exposure to adverse movements in foreign exchange rates. These financial instruments are not used for trading purposes. The financial instruments contain credit risk in that the banking counterparty may be unable to meet the terms of the agreements. Such risk is minimized by limiting counterparties to major financial institutions and by management's monitoring of credit risk. In addition, where appropriate, Baxter has arranged collateralization and master-netting agreements to minimize the risk of loss.
As part of implementing its strategy, Baxter enters into foreign exchange contracts, principally options, with terms generally less than two years, to hedge anticipated but not yet committed sales expected to be denominated in foreign currencies. Baxter has allocated to Edwards Lifesciences the net income associated with certain of
such contracts in the amounts of $1 million in 1999 and $3 million in both 1998 and 1997. The approximate notional amounts associated with the allocated portion of these foreign exchange contracts was $349 million and $177 million at December 31, 1999 and 1998, respectively. The allocations were determined based on Edwards Lifesciences' hedged sales relative to Baxter's total hedged sales, by applicable currency. With respect to Edwards Lifesciences' foreign currency exposures, Baxter principally hedges the Japanese Yen and the Euro.
Fair values of financial instruments
Carrying Approximate
amounts fair values
--------- ------------
as of December 31 1999 1998 1999 1998
----------------- ---- ---- ----- -----
(in millions)
Investments in affiliates.............................. $ 1 $ 1 $ 1 $ 1
Foreign currency hedges................................ 7 2 1 2
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The carrying values of accounts receivable and payable and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.
7. RELATED PARTY TRANSACTIONS
Baxter has provided to Edwards Lifesciences certain legal, treasury, employee benefits, insurance and administrative services. Charges for these services, which have been recorded in cost of sales, marketing and administrative expenses and research and development expenses, as applicable, are based on actual costs incurred by Baxter and totaled $64 million, $62 million and $63 million in 1999, 1998 and 1997, respectively. The bases for the amounts charged to Edwards Lifesciences varied depending on the nature of the service, but generally were determined using headcount, sales, payroll, square footage or other appropriate data, or were determined based on actual utilization of services. Management believes that the bases used for allocating services is reasonable. However, the terms of these transactions may differ from those that would result from transactions with unrelated third parties or had Edwards Lifesciences performed these functions on their own.
Edwards Lifesciences participates in a centralized cash management program administered by Baxter. Short-term advances from Baxter or excess cash sent to Baxter has been treated as an adjustment to the "Investments by and advances from (payments to) Baxter International Inc., net" account as of and through the respective balance sheet dates. No interest is charged on this balance.
Effective on the distribution date, Baxter and Edwards Lifesciences will enter into a series of administrative services agreements pursuant to which Baxter and Edwards Lifesciences will continue to provide, for a specified period of time, certain administrative services which each entity historically has provided to the other. These agreements require both parties to pay each other a fee which approximates the actual costs of these services. Additionally, subsequent to the spin-off, Edwards Lifesciences will have continuing relationships with Baxter as a customer and supplier for certain products. See "Edwards Lifesciences' Relationship with Baxter after the Distribution" included elsewhere in this Information Statement, for detailed descriptions of the related agreements.
8. RETIREMENT AND OTHER BENEFIT PROGRAMS
Edwards Lifesciences employees participated in Baxter-sponsored non- contributory, defined benefit pension plans covering substantially all employees in the U.S. and Puerto Rico and employees in certain other countries. The benefits were based on years of service and the employee's compensation during 5 of the last 10 years of employment as defined by the plans. Baxter and Edwards Lifesciences have announced their intent to freeze benefits under the U.S. plan at the date of the spin-off for the Edwards Lifesciences employees. Edwards Lifesciences has also announced that it will not have a defined benefit pension plan in the U.S. to replace the Baxter plan. The pension liability related to Edwards Lifesciences' U.S. employees' service prior to the spin-off
date will remain with Baxter. With respect to the Puerto Rico plan, Baxter plans to transfer the assets and liabilities relating to Edwards Lifesciences' employees to Edwards Lifesciences at spin-off date. Edwards Lifesciences intends to continue to have a non-contributory, defined benefit pension plan in Puerto Rico after the spin-off date.
Pension expense for the Baxter-sponsored plans in the U.S. and Puerto Rico relating to Edwards Lifesciences' employees was $5 million, $4 million, $3 million in 1999, 1998 and 1997, respectively. The assumed discount rate applied to benefit obligations to determine 1999 and 1998 pension expense was 7.25% and 7.5%, respectively. The assumed long-term rate of return on assets was 10.5% for 1999 and 1998. The assumed rate of compensation increase was 4.5% and 4.0% for the U.S. and Puerto Rico plan, respectively, in both 1999 and 1998.
In addition to pension benefits, Edwards Lifesciences participated in Baxter-sponsored contributory health-care and life insurance benefits for substantially all domestic retired employees. Baxter and Edwards Lifesciences have announced that they will freeze benefits under these plans at the date of the spin-off for Edwards Lifesciences employees. Edwards Lifesciences has announced its intention not to establish new health-care and life insurance plans for employees retiring subsequent to the spin-off date. Expense associated with these benefits relating to Edwards Lifesciences employees was less than $1 million in each of the years 1999, 1998 and 1997.
Most U.S. employees have been eligible to participate in a qualified 401(k) plan. Participants could contribute up to 12% of their annual compensation (subject to IRS limitation) to the plan and Baxter matched participants' contributions, up to 3% of an individual participant's compensation. Matching contributions relating to Edwards Lifesciences employees were approximately $3 million in each of 1999, 1998 and 1997.
9. OTHER EXPENSE (INCOME)
Components of other expense (income) are as follows:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
Asset dispositions and writedowns, net................... $ 1 $ 6 $--
Insurance and legal settlements.......................... (1) (13) --
Foreign exchange......................................... 2 1 --
Other.................................................... 2 -- 1
--- ---- ----
Total other expense (income)............................. $ 4 $ (6) $ 1
=== ==== ====
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10. INCOME TAXES
Income before tax expense by category is as follows:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
U.S...................................................... $ 92 $66 $(42)
International............................................ 21 27 27
---- --- ----
Income before income tax expense......................... $113 $93 $(15)
==== === ====
|
Income tax expense by category and by income statement classification is as follows:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
Current
U.S.
Federal................................................. $ 13 $ 16 $ 18
State and local, including Puerto Rico.................. 8 11 16
International............................................ 8 4 7
---- ---- ----
Current income tax expense................................ 29 31 41
Deferred
U.S.
Federal................................................. 2 -- (3)
State and local, including Puerto Rico.................. -- -- (1)
International........................................... -- -- --
---- ---- ----
Deferred income tax expense............................... 2 -- (4)
---- ---- ----
Income tax expense........................................ $ 31 $ 31 $ 37
==== ==== ====
|
The income tax shown above was calculated as if Edwards Lifesciences were a stand-alone entity.
The components of deferred tax assets and liabilities are as follows:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
Deferred tax assets
Accrued expenses..................................... $ 8 $ 12 $ 8
Other................................................ 1 2 2
---- ---- ----
Total deferred tax assets.......................... 9 14 10
Deferred tax liabilities
Asset basis differences.............................. 47 43 45
Other................................................ 1 1 1
---- ---- ----
Total deferred tax liabilities..................... 48 44 46
---- ---- ----
Net deferred tax assets (liabilities).................. $(39) $(30) $(36)
==== ==== ====
|
Income tax expense differs from income tax expense calculated by using the U.S. federal income tax rate for the following reasons:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
Income tax expense at statutory rate................... $ 40 $ 33 $ (5)
Tax-exempt operations.................................. (24) (12) (16)
Nondeductible goodwill................................. 12 12 12
State and local taxes.................................. 3 4 4
Foreign tax expense.................................... -- (6) (4)
In-process R&D expense................................. -- -- 46
---- ---- ----
Income tax expense..................................... $ 31 $ 31 $ 37
==== ==== ====
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The company has manufacturing operations outside the United States, namely in Puerto Rico and Switzerland, which benefit from reductions in local tax rates under various tax incentives. As a result of the spin-
off of the company from Baxter and other actions, the company will seek to renegotiate these existing tax incentives. It is expected that comparable tax grants will be secured on a stand-alone basis in due course.
11. LEGAL PROCEEDINGS
Upon the distribution, Edwards Lifesciences will assume the defense of litigation involving cases and claims related to the Edwards Lifesciences business. Edwards Lifesciences has not been named as a defendant in such matters but will be defending and indemnifying Baxter Healthcare Corporation, as contemplated by the reorganization agreement, for all related expenses and potential liabilities. It is possible that Edwards Lifesciences may be added as a defendant in existing cases and claims.
The cases and claims relate primarily to products and services currently or formerly manufactured or performed, as applicable, by Edwards Lifesciences. Such cases and claims raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. Accordingly, in certain cases, Edwards Lifesciences is not able to estimate the amount of its liabilities with respect to such matters.
Upon resolution of any pending legal matters, Edwards Lifesciences may incur charges in excess of presently established reserves. While such a charge could have a material adverse impact on Edwards Lifesciences' net income or net cash flows in the period in which it is recorded or paid, management believes that no such charge would have a material adverse effect on Edwards Lifesciences' combined financial position.
Edwards Lifesciences believes that the liability and defense costs relating to its legal matters will be within self-insured retentions or substantially covered by insurance, subject to exclusions, conditions, policy limits and potential insurer insolvency.
12. STOCK-BASED COMPENSATION PLANS
Certain employees of Edwards Lifesciences participated in stock-based compensation plans sponsored by Baxter. Such plans principally included fixed stock option plans and employee stock purchase plans. Baxter applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for such plans. Accordingly, no compensation cost has been recognized by Baxter for its fixed stock option plans and its stock purchase plans. These plans are the sole responsibility of Baxter and, accordingly, no information is presented herein.
Employees who transfer to the cardiovascular business will be required to exercise any vested options within 90 days from the date of spin-off, which is currently anticipated to occur during the first quarter of 2000. All unvested options will be canceled 90 days after the date of spin-off.
13. SEGMENT INFORMATION
The company manages its business on the basis of one reportable segment. Refer to Note 1 for a description of the company's business. The company's products and services share similar distribution channels and customers and are sold principally to hospitals and physicians. Management evaluates its various global product portfolios on a revenue basis, which is presented below, and profitability is generally evaluated on an enterprise-wide basis due to shared infrastructures. Edwards Lifesciences' principal markets are the United States, Europe and Japan.
Geographic area data includes net sales based on product shipment destination and long-lived asset data is presented based on physical location.
as of or for the year ended December 31 1999 1998 1997
--------------------------------------- ---- ---- ----
(in millions)
Net Sales by Geographic Area
United States............................................. $504 $508 $515
Japan..................................................... 166 138 154
Other countries........................................... 235 219 210
---- ---- ----
Totals.................................................... $905 $865 $879
==== ==== ====
Net Sales by Major Product and Service Area
Cardiac Surgery........................................... $306 $273 $247
Vascular.................................................. 61 60 57
Critical Care............................................. 242 221 227
Perfusion Products and Services........................... 244 269 289
Other..................................................... 52 42 59
---- ---- ----
Totals.................................................... $905 $865 $879
==== ==== ====
Long-Lived Assets by Geographic Area
United States............................................. $196 $198 $189
Other countries........................................... 30 29 28
---- ---- ----
Totals.................................................... $226 $227 $217
==== ==== ====
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Sales to Allegiance Corporation, a subsidiary of Cardinal Health, Inc., represented approximately 12 percent, 13 percent and 10 percent of the company's total net sales in 1999, 1998 and 1997, respectively.
SCHEDULE II
Valuation and Qualifying Accounts
Additions
----------------------
Balance at Charged to Charged to Deductions Balance
beginning costs and other from at end of
of period expenses accounts(a) reserves period
---------- ---------- ----------- ---------- ---------
(In millions of dollars)
Year ended December 31,
1999:
Allowance for doubtful
accounts and returns. $ 8 $ 5 -- $(5) $ 8
Inventory reserves.... 10 9 1 (8) 12
Litigation reserves... 1 1 -- -- 2
---------------------------------------
Year ended December 31,
1998:
Allowance for doubtful
accounts and returns. 6 8 -- (6) 8
Inventory reserves.... 13 4 -- (7) 10
Litigation reserves... 1 1 -- (1) 1
---------------------------------------
Year ended December 31,
1997:
Allowance for doubtful
accounts and returns. 6 6 (1) (5) 6
Inventory reserves.... 15 3 -- (5) 13
Litigation reserves... -- 1 -- -- 1
Deferred tax asset
valuation allowance.. 1 -- -- (1) --
---------------------------------------
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ Michael A. Mussallem
By: ________________________________
Name: Michael A. Mussallem
Title: Chief Executive Officer
Date: March 15, 2000
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(b) Exhibits
Amended and Restated Certificate of Incorporation of Edwards
3.1** Lifesciences Corporation
3.2** Amended and Restated Bylaws of Edwards Lifesciences Corporation
3.3* Form of Certificate of Designation for Edwards Lifesciences
Corporation Series A Junior Participating Preferred Stock (included
as Exhibit A to Exhibit 10.9)
4.1** Specimen form of certificate representing Edwards Lifesciences
Corporation common stock
10.1* Form of Agreement and Plan of Reorganization, to be entered into
between Edwards Lifesciences Corporation and Baxter International
Inc.
10.2* Form of Tax Sharing Agreement, to be entered into between Edwards
Lifesciences Corporation and Baxter International Inc.
10.3** Edwards Lifesciences Corporation Long-Term Stock Incentive
Compensation Program
10.4** Edwards Lifesciences Corporation Change in Control Severance
Agreement
10.5** Employment Agreement For Michael A. Mussallem
10.6** Edwards Lifesciences Corporation Employee Stock Purchase Plan for
United States Employees
10.7** Edwards Lifesciences Corporation Deferred Compensation Plan
10.7** Edwards Lifesciences Corporation Chief Executive Officer Change in
Control Severance Agreement
10.9* Form of Rights Agreement between Edwards Lifesciences Corporation and
Equiserve Trust Company, N.A, as Rights Agent, dated as of [March
], 2000
10.10* Services and Distribution Agreement between Edwards Lifesciences LLC,
as successor in interest to Baxter Healthcare Corporation, and
Allegiance Healthcare Corporation, dated as of October 1, 1996.
CONFIDENTIAL INFORMATION APPEARING IN THIS DOCUMENT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN
ACCORDANCE WITH SECTION 24(b) OF THE THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED AND RULE 24b-2 PROMULGATED THEREUNDER. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
10.11* Form of Employment Agreement
10.12* Form of Consulting Agreement
10.13* Form of Outgoing Confidentiality Agreement
10.14** Edwards Lifesciences Corporation Nonemployee Directors and
Consultants Stock Incentive Program
10.15** Edwards Lifesciences Corporation Employee Stock Purchase Plan for
International Employees
21.1** Subsidiaries of Edwards Lifesciences Corporation
27.1* Financial Data Schedule--December 31, 1999
27.2* Financial Data Schedule--December 31, 1998
27.3* Financial Data Schedule--December 31, 1997
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NOTE
*previously filed
**filed herewith
Exhibit 3.1
AMENDED and RESTATED
CERTIFICATE OF INCORPORATION of
Edwards Lifesciences Corporation
*****
Edwards Lifesciences Corporation a Delaware corporation, initially incorporated as CVG Controlled Inc. on September 10, 1999, has duly adopted by action of its Board of Directors and stockholders the following amended and restated Certificate of Incorporation in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of Delaware.
FIRST: The name of the Corporation is Edwards Lifesciences Corporation.
SECOND: The registered office of the Corporation in the State of Delaware is located at 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is Four Hundred Million (400,000,000) shares, of which Fifty
Million (50,000,000) shares, par value $.01 per share, shall be preferred stock
(the "Preferred Stock") and of which Three Hundred Fifty Million (350,000,000)
shares, par value $1.00 per share, shall be common stock (the "Common Stock").
Authority is hereby granted to and vested in the Board of Directors of the Corporation to issue Preferred Stock in one or more series and in connection therewith to fix by resolutions providing for the issuance of such series the number of shares to be included in each such series, and the designations, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof, to the full extent now and hereafter permitted by the laws of the State of Delaware. Without limiting the generality of the grant of authority contained in the preceding sentence, the Board of Directors is authorized to determine any or all of the following, and the shares of each series may vary from the shares of any other series in any or all of the following respects:
1. The number of shares of such series (which may subsequently be increased, except as otherwise provided by the resolutions of the Board of Directors providing for the issue of such series, or decreased to a number not less than the number of shares then outstanding) and the distinctive designation thereof;
2. The dividend rights, if any, of such series, the dividend preferences, if any, as between such series and any other class or series of stock, whether and the extent to which shares of such series shall be entitled to participate in dividends with shares of any other series or class of stock, whether and the extent to which dividends on such series shall be cumulative, and any limitations, restrictions or conditions on the payment of such dividends;
3. The time or times during which, the price or prices at which, and any other terms or conditions on which the shares of such series may be redeemed, if redeemable;
4. The rights of such series, and the preferences, if any, as between such series and any other class or series of stock, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and whether and the extent to which shares of any such series shall be entitled to participate in such event with any other class or series of stock;
5. The voting powers, if any, in addition to the voting powers prescribed by law of shares of such series and, to the extent not prohibited by applicable law, voting powers which may exceed one vote per share, and the terms of exercise of such voting powers;
6. Whether shares of such series shall be convertible into or exchangeable for shares of any other series or class of stock, or any other securities, and the terms and conditions, if any, applicable to such rights; and
7. The terms and conditions, if any, of any purchase, retirement or sinking fund which may be provided for the shares of such series.
FIFTH: Subject to the rights of the holders of the Preferred Stock or any series thereof to elect additional directors under specific circumstances, the number of directors which shall constitute the whole Board of Directors of the Corporation shall be the number from time to time fixed by the Board of Directors. A decrease in the number of directors shall not affect the term of office of any director then in office.
Subject to the rights of the holders of the Preferred Stock or any series thereof to fill any newly-created directorships or vacancies, any vacancy on the Board of Directors that results from an increase in the number of directors, or for any other reason, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
Subject to the rights of the holders of any series of Preferred Stock, any director may be removed from office at any time, but only for cause and only by the affirmative vote of at least a majority of the then outstanding shares entitled to vote for the election of such director.
Unless the Corporation's Bylaws specify otherwise, the election of directors of the Corporation need not be by written ballot.
SIXTH: The directors, other than those who may be elected by the holders of any series of Preferred Stock under specific circumstances, shall be divided into three classes, as nearly equal in number as possible, and designated as Class I, Class II and Class III. The initial term of office of the Class I directors shall expire at the 2001 annual meeting of stockholders, the initial term of office of the Class II directors shall expire at the 2002 annual meeting of stockholders and the initial term of office of the Class III directors shall expire at the 2003 annual meeting of stockholders. Members of each class shall hold office until their successors shall have been duly elected and qualified. At each annual meeting of stockholders, beginning with the 2001 annual meeting of stockholders, the successors of the class of directors whose terms are expiring shall be elected for a term expiring at the third succeeding annual meeting of stockholders or thereafter in each case until their respective successors are duly elected and qualified, subject to death, resignation, retirement or removal from office.
Any new positions created as a result of the increase in the number of directors shall be allocated to make the classes of directors as nearly equal as possible. Any director elected to fill a term resulting from an increase in the number of directors shall have the same term as the other members of such director's class. A director elected to fill any other vacancy shall have the same remaining term as that of such director's predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more series of preferred stock issued by the Corporation shall have the right, voting separately by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article SIXTH unless expressly provided by such terms.
SEVENTH: The Board of Directors shall have such powers as are permitted by the General Corporation Law of Delaware, including, without limitation, without the assent or vote of the stockholders, to make, alter, amend, change, add to, or repeal the Bylaws of the Corporation; to fix and vary the amount to be reserved as working capital; to authorize and cause to be executed mortgages and liens upon all the property of the Corporation or any part thereof; to determine the use and disposition of any surplus or net profits over and above the capital stock paid in; and to fix the times for the declaration and payment of dividends.
EIGHTH: Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of at least eighty percent (80%) of the voting power of the then outstanding Voting Stock (as defined below), voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, the Bylaws of the Corporation or Articles FIFTH, SIXTH and TWELFTH of this Certificate of Incorporation. For the purposes of this Certificate of Incorporation, "Voting Stock" shall mean the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors.
NINTH: No person who is, or was at any time but is no longer serving as, a director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such person as a director; provided that the provisions of this Article NINTH shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. No amendment to or repeal of this Article NINTH shall have the effect of increasing the liability or alleged liability of any director of the Corporation for or with respect to any act or omission of such director occurring prior to such amendment or repeal.
TENTH: The Corporation shall indemnify and advance expenses to each person who serves as an officer or director of the Corporation or a subsidiary of the Corporation and each person who serves or may have served at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise from any liability incurred as a result of such service to the fullest extent permitted by the General Corporation Law of Delaware as it may from time to time be amended, except with respect to an action commenced by such director or officer against the Corporation or by such director or officer as a derivative action by or in the right of the Corporation.
Each person who is or was an employee or agent of the Corporation and each officer or director who commences any action against the Corporation or a derivative action by or in the right of the Corporation may be similarly indemnified and receive an advance of expenses at the discretion of the Board of Directors.
The indemnification and advancement of expenses provided by, or granted pursuant to, the Certificate of Incorporation shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office.
The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of this Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under this Certificate of Incorporation or Delaware law.
The indemnification and advancement of expenses provided by, or granted pursuant to, this Certificate of Incorporation shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
ELEVENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this reservation. No amendment to this Certificate of Incorporation or repeal of any article of this Certificate of Incorporation shall increase the liability or alleged liability or reduce or limit the right to indemnification of any directors, officers, employees or agents of the Corporation for acts or omissions of such person occurring prior to such amendment or repeal.
TWELFTH: Effective from and after the date upon which the Corporation shall first have more than one stockholder, no action which requires the vote or consent of stockholders of the Corporation may be taken without a meeting and vote of stockholders and the power of stockholders to consent thereafter in writing without a meeting to the taking of any action is specifically denied.
IN WITNESS WHEREOF, Edwards Lifesciences Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by Michael A. Mussallem, its Chairman of the Board and Chief Executive Officer, this _____day of ________, 2000.
Edwards Lifesciences Corporation
By_____________________
Michael A. Mussallem
Chairman of the Board and
Chief Executive Officer
Exhibit 3.2
Edwards Lifesciences Corporation
AMENDED AND RESTATED BYLAWS
EFFECTIVE March 10, 2000
ARTICLE I
STOCKHOLDERS
SECTION 1. PLACE OF HOLDING MEETINGS. All meetings of the stockholders shall be held at the principal executive offices of the Corporation, or such other place as shall be determined by the Board of Directors.
SECTION 2. ELECTION OF DIRECTORS.
(a) The annual meeting of stockholders for the election of directors and the transaction of other business shall be held at such time and date as shall be determined by the Board of Directors.
(b) Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the Corporation,
except as may be otherwise provided in the Certificate of Incorporation of the
Corporation with respect to the right of holders of Preferred Stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board of Directors
may be made at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (i) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (ii) by any stockholder of the Corporation (A) who is a stockholder of record
or beneficial owner on the date of the giving of the notice provided for in this
Section 2 and on the record date for the determination of stockholders entitled
to vote at such meeting and (B) who complies with the notice procedures set
forth in this Section 2.
(c) In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the secretary of the Corporation.
(d) To be timely, a stockholder's notice to the secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
(i) in the case of an annual meeting, not less than seventy-five (75) days nor
more than one hundred (100) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided, however, that in
the event that the annual meeting is called for a date that is not within thirty
(30) days before or after such anniversary date, notice by the stockholder in
order to be timely must be so received not later than the close of business on
the tenth (10th) day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure of the date of the annual
meeting was made, whichever occurs first, and (ii) in the case of a special
meeting of stockholders called for the purpose of electing directors, not later
than the close of
business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever occurs first.
(e) To be in proper written form, a stockholder's notice to the secretary
must set forth (i) as to each person whom the stockholder proposes to nominate
for election as a director (A) the name, age, business address and residence
address of the person, (B) the principal occupation or employment of the person,
(C) the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (D) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with the
solicitations of the proxies for election of directors pursuant to Section 14 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations promulgated thereunder, or any successor provisions
thereto; and (ii) as to the stockholder giving the notice (A) the name and
record address of such stockholder, (B) the class or series and number of shares
of capital stock of the Corporation which are owned beneficially or of record by
such stockholder, (C) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by such stockholder, (D) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the persons named in its
notice and (E) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder, or any successor provisions thereto. Such notice must
be accompanied by a written consent of each proposed nominee to being named as a
nominee and to service as a director if elected.
(f) No person shall be eligible for election as a director of the Corporation, at any annual meeting of stockholders or at any special meeting of stockholders called for the purpose of electing directors, unless nominated in accordance with the procedures set forth in this Section 2. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
(g) The determination of whether shares of capital stock of the Corporation are owned beneficially under this Section 2 shall be made in the manner applicable to proposals submitted pursuant to Rule 14a-8 of the Exchange Act, or any successor provisions thereto.
SECTION 3. VOTING. Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation, these Bylaws or Delaware law shall, unless the Certificate of Incorporation or Delaware law otherwise provides, be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. The vote for directors, and upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. Except for the election of directors, which shall be decided by a plurality of the shares present in person or represented by proxy at the meeting and entitled to vote thereat, all matters shall be decided by the affirmative vote of a majority of shares present in
person or represented by proxy at any meeting duly called and entitled to vote thereat, except as otherwise provided by the Certificate of Incorporation and/or Delaware law.
A stockholder may authorize another person or persons to act for such
stockholder as proxy (i) by executing a writing authorizing such person or
persons to act as such, which execution may be accomplished by such stockholder
or such stockholder's authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing by
any reasonable means, including, but not limited to, facsimile signature, or
(ii) by transmitting or authorizing the transmission of a telegram, cablegram or
other means of electronic transmission (a "Transmission") to the person who will
be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such Transmission, which Transmission must either
set forth or be submitted with information from which it can be determined that
such Transmission was authorized by such stockholder. The Secretary or such
other person or persons as shall be appointed from time to time by the Board of
Directors shall examine Transmissions to determine if they are valid. If it is
determined that a Transmission is valid, the person or persons making that
determination shall specify the information upon which such person or persons
relied. Any copy, facsimile telecommunication or other reliable reproduction of
such writing or such a Transmission that is a complete reproduction of the
entire original writing or Transmission may be substituted or used in lieu of
the original writing or Transmission for any and all purposes for which the
original writing or Transmission could be used.
The secretary shall prepare and make, at least ten (10) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 4. QUORUM. Except as provided in the next section hereof, any number of stockholders together holding a majority of the stock issued and outstanding and entitled to vote thereat, who shall be present in person or represented by proxy at any meeting duly called, shall constitute a quorum for the transaction of business. If a quorum is present when a meeting is convened, the subsequent withdrawal of stockholders, even though less than a quorum remains, shall not affect the ability of the remaining stockholders lawfully to transact business.
SECTION 5. ADJOURNMENT OF MEETINGS. If less than a quorum shall be in attendance at any time for which the meeting shall have been called, the meeting may, after the lapse of at least half an hour, be adjourned from time to time by a majority of the stockholders present or represented and entitled to vote thereat. If notice of such adjourned meeting is sent to the stockholders entitled by statute to receive the same, and such notice contains a statement of
the purpose of the meeting, that the previous meeting failed for lack of a quorum, and that under the provisions of this Section it is proposed to hold the adjourned meeting with a quorum of those present, then any number of stockholders, in person or by proxy, shall constitute a quorum at such meeting unless otherwise provided by statute.
In addition, the chairman of the meeting may adjourn the meeting from time to time, whether or not there is such a quorum (or, in the case of specified business to be voted on by a class or series, the chairman or a majority of the shares of such class or series so represented may adjourn the meeting with respect to such specified business). Notice need not be given of any such adjourned meeting if the date, time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting any business may be transacted that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting in accordance with Section 7 of this Article I.
SECTION 6. SPECIAL MEETINGS; HOW CALLED. Special meetings of the stockholders for any purpose or purposes may be called only (a) by the chairman of the board and chief executive officer or the secretary, and shall be called by the chairman of the board and chief executive officer or the secretary upon a request in writing therefor, stating the purpose or purposes thereof, delivered to the chairman of the board and chief executive officer or the secretary, signed by a majority of the directors or (b) by resolution adopted by a majority of the Board of Directors. The business transacted at a special meeting of stockholders shall be limited solely to the matters relating to the purpose or purposes stated in the Corporation's notice of meeting.
SECTION 7. NOTICE OF STOCKHOLDERS' MEETINGS. Written or printed notice stating the time and place of regular or special meetings of the stockholders and the general nature of the business to be considered shall be mailed by the secretary, or such other officer as the Board of Directors may designate, to each stockholder entitled to vote thereat at his address as it appears on the records of the Corporation, at least ten (10) days but not more than sixty (60) days before the date of such meeting. Such notice shall be deemed to be delivered when deposited in the United States mail, postage thereon prepaid, addressed to the stockholder at such stockholder's address as it appears on the stock transfer books of the Corporation.
SECTION 8. CONDUCT OF THE MEETINGS.
(a) The chairman of the board, or his or her designee, shall preside over meetings of stockholders and shall have absolute authority over matters of procedure, and there shall be no appeal from the ruling of the chairman. If the chairman, in his or her absolute discretion, deems it advisable to dispense with the rules of parliamentary procedure as to any one meeting of stockholders or part thereof, the chairman shall so state and shall clearly state the rules under which the meeting or appropriate part thereof shall be conducted.
(b) If disorder should arise which prevents continuation of the legitimate business of the meeting, the chairman may quit the chair and announce the adjournment of the meeting; and upon his or her doing so, the meeting is immediately adjourned.
(c) The chairman may ask or require that anyone not a bona fide stockholder or proxy leave the meeting.
(d) A resolution or motion shall be considered for vote only if (i) proposed by a stockholder or duly authorized proxy, and seconded by an individual, who is a stockholder or a duly authorized proxy, other than the individual who proposed the resolution and (ii) all other requirements under law, the Corporation's Certificate of Incorporation, these Bylaws or otherwise for consideration of such a resolution or motion have been duly satisfied as determined by the chairman in his or her absolute discretion, from which there shall be no appeal.
SECTION 9. ANNUAL MEETINGS.
(a) No business may be transacted at an annual meeting of stockholders, other than business that is either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (ii) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) otherwise properly brought before the annual meeting by any stockholder of the Corporation (A) who is a stockholder of record or beneficial owner on the date of the giving of the notice provided for in this Section 9 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (B) who complies with the notice procedures set forth in this Section 9.
(b) In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the secretary of the Corporation, which notice is not withdrawn by such stockholder at or prior to such annual meeting.
(c) To be timely, a stockholder's notice to the secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than seventy-five (75) days nor more than one hundred (100) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever occurs first.
(d) To be in proper written form, a stockholder's notice to the secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal of such business by such
stockholder and any material interest of such stockholder in such business and
(v) a representation that such stockholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.
(e) No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 9. If the chairman of the annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
(f) The determination of whether shares of capital stock of the Corporation are owned beneficially under this Section 9 shall be made in the same manner applicable to proposals submitted pursuant to Rule 14a-8 of the Exchange Act, or any successor provisions thereto.
ARTICLE II
DIRECTORS
SECTION 1. QUALIFICATION AND QUORUM. No person shall be eligible for election or appointment as a director who, at the time of his or her election or appointment is 70 years old, or older. One-half of the total number of directors (rounded upwards, if necessary, to the next whole number) shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at said meeting which shall be so adjourned. The Board of Directors, or any committee thereof, may also transact business without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing (which may be in counterparts), and the written consent or consents are filed with the minutes of the proceedings of the Board of Directors or such committee.
The act of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, unless otherwise provided by the laws of the State of Delaware, the Certificate of Incorporation or these Bylaws.
SECTION 2. REGULAR MEETINGS. A regular annual meeting of the Board of Directors shall be held, without call or notice, in connection with the annual meeting of stockholders, for the purpose of organizing the Board of Directors, electing officers and transacting any other business that may properly come before such meeting. Additional regular meetings of the Board of Directors may be held without call or notice at such times as shall be determined by the Board of Directors.
SECTION 3. ELECTION OF OFFICERS. At the first meeting or at any subsequent meeting called for the purpose, the directors shall elect a chairman of the board and chief executive officer as well as a secretary, and may elect a president, one or more executive vice presidents, one or more senior vice presidents, one or more group vice presidents, one or more corporate vice presidents, one or more vice presidents, a treasurer, and one or more assistant secretaries, who need not be directors. Each such officer shall hold office until the next annual election of officers, and until his successor is duly elected and qualified, or until such officer's earlier resignation, removal or death.
SECTION 4. SPECIAL MEETINGS: HOW CALLED: NOTICE. Special meetings of the board may be called by the chairman of the board and chief executive officer, and shall be called by the chairman of the board and chief executive officer or the secretary on the written request of any two directors, in each case on twenty- four (24) hours notice to each director. Such notice, which need not specify the purpose of the meeting or the matters to be considered thereat, may be given as provided in Article VIII, personally (including by telephone or facsimile) or by telegram or other written communication delivered to the residence or office of the director. Such personal notice or written communication shall be effective when delivered.
SECTION 5. PLACE OF MEETING. The directors may hold their meetings and have one or more offices, and keep the books of the Corporation, outside the State of Delaware, at any office or offices of the Corporation, or at any place as they may from time to time by resolution determine.
SECTION 6. TELEPHONIC MEETINGS. Directors, or any committee of directors
designated by the Board of Directors, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.
SECTION 7. GENERAL POWERS OF DIRECTORS. The Board of Directors shall have the management of the business of the Corporation, and subject to the restrictions imposed by law, by the Certificate of Incorporation or by these Bylaws, may exercise all the powers of the Corporation, including any powers incidental thereto.
SECTION 8. COMPENSATION OF DIRECTORS. Directors shall not receive any stated salary for their services as directors, but the Board of Directors may by resolution authorize compensation together with expenses of attendance at meetings. Such compensation may take the form of cash, stock options or other compensation. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor.
ARTICLE III
COMMITTEES
SECTION 1. The Board of Directors shall create an audit and public policy committee, and a compensation and planning committee, and may create such other committees as the board, from time to time, deems desirable. Each committee shall consist of one or more of the directors of the Corporation and, to the extent provided in the resolutions creating the committees or in these Bylaws, shall have the powers of the Board of Directors in the management of the business and affairs of the Corporation.
SECTION 2. The audit and public policy committee shall consist solely of directors who are independent of management and free from any relationships that, in the opinion of the Board of Directors, would interfere with their exercise of independent judgment as a committee member. The Policy Statement on Audit Committees issued by the New York Stock Exchange, as in effect from time to time, shall be applicable in determining which directors are "independent" for this purpose.
The audit and public policy committee shall assist the Board of Directors in fulfilling its responsibilities for the Corporation's accounting and financial reporting practices and provide a channel of communication between the Board of Directors and the Corporation's independent auditors. The committee also shall review the policies and practices of the Corporation to assure that they are consistent with its social responsibility to employees, to customers and to society.
To accomplish the above purposes, the audit and public policy committee shall:
(a) Review with the independent auditors the scope of their annual and interim examinations, placing particular attention where either the committee or the auditors believe such attention should be directed, and to direct the auditors to expand (but not to limit) the scope of their audit whenever such action is, in the opinion of the committee, necessary or desirable. The independent auditors shall have sole authority to determine the scope of the audit which they deem necessary for the formation of an opinion on financial statements;
(b) Consult with the auditors during any annual or interim audit on any situation which the auditors deem advisable for resolution prior to the completion of their examination;
(c) Meet with the auditors to appraise the effectiveness of the audit effort. Such appraisal shall include a discussion of the overall approach to and the scope of the examination, with particular attention on those areas on which either the committee or the auditors believe emphasis is necessary or desirable;
(d) Determine through discussions with the auditors and otherwise, that no restrictions were placed by management on the scope of the examination or its implementation;
(e) Inquire into the effectiveness of the Corporation's accounting and internal control functions through discussions with the auditors and appropriate officers of the Corporation and exercise supervision of the Corporation's policies which prohibit improper or illegal payments;
(f) Review with the auditors and management any registration statement which shall be filed by the Corporation in connection with the public offering of securities and such other public financial reports as the committee or the Board of Directors shall deem desirable;
(g) Report to the Board of Directors on the results of the committee's activities and recommend to the Board of Directors any changes in the appointment of independent auditors which the committee may deem to be in the best interests of the Corporation and its stockholders;
(h) Monitor the Corporation's policies and practices relating to the health and safety of employees and customers as well as the ethical standards of the Corporation; and
(i) Have such other powers and perform such other duties as set forth in the Audit and Public Policy Committee charter, which shall be adopted by the Board of Directors, and as the board shall, from time to time, grant and assign to it.
SECTION 3. The compensation and planning committee shall consist solely of directors who are independent of management, as defined in Section 2.
(a) The committee shall (1) determine the compensation of officers and advise the Board of Directors of such determination, (2) exercise the authority of the Board of Directors concerning employee benefit plans, including those plans which are limited in their application to officers and senior management, and (3) advise the Board of Directors and the chairman of the board and chief executive officer on other compensation and employee benefit matters.
(b) In addition, the committee shall assist and advise the Board of Directors in connection with board membership, board committee structure and membership. To accomplish these purposes, the committee shall:
(1) Develop general criteria for use in selecting potential new board members and assist the Board in identifying and attracting qualified candidates for election to the board;
(2) Recommend to the Board annually a slate of nominees to be proposed by the Board to the stockholders as nominees for election as directors and, from time to time, recommend persons to fill any vacancy on the Board;
(3) Recommend to the Board any changes in number, authority and duties of board committees and the chairmen and members who should serve thereon;
(4) In the event of the death, incapacity, resignation or other absence (temporary or permanent) of the chairman of the board and chief executive officer, the committee shall confer and recommend for election by the full Board an acting or successor chairman of the board and chief executive officer; and
(5) Make recommendations to the Board concerning compensation payable for board membership, as well as other benefits available to board members.
The compensation and planning committee shall have such other powers and perform such other duties as the Board shall, from time to time, grant and assign to it.
SECTION 4. The following provisions shall apply to all committees of the Board of Directors:
(a) Any power or authority granted to a committee by these bylaws may also be exercised by the Board of Directors;
(b) Each member of a committee shall hold office until the next regular annual meeting of the Board of Directors following his designation and until his successor is designated as a member of a committee, or until the committee is dissolved by a majority of the whole board or the member is removed as hereinafter provided;
(c) Meetings of a committee may be called by any member thereof, the chairman of the board and chief executive officer, the secretary or any assistant secretary upon twenty-four (24) hours notice to each member stating the place, date and hour of the meeting, which notice may be written or oral. Such notice shall be deemed to be delivered (i) if mailed, when deposited in the United States mail, postage prepaid, addressed to the member of the committee at his business address, provided it is mailed four (4) days prior to the meeting or (ii) if transmitted by facsimile, when confirmation of transmission is received. Any member of a committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of a committee need not state the business proposed to be transacted at the meeting;
(d) The lesser of a majority of the members or two members of a committee shall constitute a quorum for the transaction of business at any meeting thereof and action of a committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present;
(e) Any action that may be taken by a committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action to be taken, shall be signed by all the members of a committee and filed with the minutes of the committee, which action shall be effective as of the date stated in such consent;
(f) Any vacancy on a committee may be filled by a resolution adopted by a majority of the Board of Directors;
(g) Any member of a committee may be removed at any time with or without cause by resolution adopted by a majority of the Board of Directors;
(h) The chairman of each committee of the Board of Directors shall be appointed from among the members of such committee by the Board of Directors. The chairman of the committee shall, if present, preside at all meetings of a committee. A committee may fix its own rules of procedure which shall not be inconsistent with these Bylaws. Each committee shall keep regular minutes of its proceedings and report its proceedings at the next meeting of the Board of Directors; and
(i) The chairman of the board and chief executive officer shall act in an advisory capacity to all committees.
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Corporation shall be the chairman of the board and chief executive officer and the secretary, and may include a president, one or more executive vice presidents, one or more senior vice presidents, one or more group vice presidents, one or more corporate vice presidents, one or more vice presidents, a treasurer, one or more assistant secretaries and such other officers as may from time to time be elected or appointed by the Board of Directors. Any number of offices may be held by the same person.
SECTION 2. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. The chairman of the board and chief executive officer shall be the chief executive officer of the Corporation and shall have the responsibility for the management of the Corporation and such other powers and duties as may be assigned to him or her from time to time by the board. The chairman of the board and chief executive officer shall, when present, preside at all meetings of the stockholders and of the Board of Directors. He or she shall act as liaison from and as spokesperson for the board. He or she shall participate in long range planning for the Corporation. He or she may sign shares of the Corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed, or which are in the ordinary course of business of the Corporation. He or she may vote, either in person or by proxy, all the shares of the capital stock of any company which the Corporation owns or is otherwise entitled to vote at any and all meetings of the stockholders of such company and shall have the power to accept or waive notice of such meetings. He or she shall in general perform all duties incident to the office and such other duties as shall be prescribed by the Board of Directors from time to time.
SECTION 3. PRESIDENT. The president shall have such duties and authority as the chairman of the board and chief executive officer may determine from time to time. In the absence or disability of the chairman of the board and chief executive officer, the president shall exercise all powers and discharge all of the duties of the chairman of the board and chief executive officer, including the general supervision and control of all the business and affairs of the Corporation. The President may sign any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed or which are in the ordinary course of business of the Corporation. The President may vote, either in person or by proxy, all the shares of the capital stock of any company which the Corporation owns or is otherwise entitled to vote at any and all meetings of the stockholders of such company and shall have the power to accept or waive notice of such meetings.
SECTION 4. VICE PRESIDENTS. In the absence or disability of the chairman of the board and chief executive officer and the president, the functions of the chairman of the board and chief executive officer shall be performed by the executive vice president who was first elected to that office and who is not then absent or disabled, or, if none, the senior vice president who was first elected to that office and who is not then absent or disabled, or, if none, the group vice president who was first elected to that office and who is not then absent or disabled,
or, if none, the corporate vice president who was first elected to that office and who is not then absent or disabled, or, if none, the vice president who was first elected to that office and who is not then absent or disabled. Each executive vice president, senior vice president, group vice president, corporate vice president and vice president shall have such powers and shall discharge such duties as may be assigned to him or her from time to time by the chairman of the board and chief executive officer or the president and may sign any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed or which are in the ordinary course of business. Each executive vice president, senior vice president, group vice president, corporate vice president and vice president may vote, either in person or by proxy, all the shares of the capital stock of any company which the Corporation owns or is otherwise entitled to vote at any and all meetings of the stockholders of such company and shall have the power to accept or waive notice of such meetings.
SECTION 5. SECRETARY. The secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these Bylaws, and in the case of his or her absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the chairman of the board and chief executive officer or the directors, upon whose requisition the meeting is called as provided in these Bylaws. The Secretary shall record all the proceedings of the meetings of the stockholders and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him or her by the Board of Directors, the chairman of the board and chief executive officer, or the president. The Secretary shall have the custody of the seal of the Corporation and shall affix the same to all instruments requiring it, when authorized by the Board of Directors, the chairman of the board and chief executive officer, or the president, and attest the same. The Secretary shall have charge of the original stock books, transfer books and stock ledgers, and act as transfer agent in respect of the stock and the securities of the Corporation in the absence of designation by the Board of Directors of a corporate transfer agent, and shall perform all of the other duties incident to the office of secretary. The Secretary may vote, either in person or by proxy, all the shares of the capital stock of any company which the Corporation owns or is otherwise entitled to vote at any and all meetings of the stockholders of such company and shall have the power to accept or waive notice of such meetings.
SECTION 6. ASSISTANT SECRETARY. Each assistant secretary shall have such powers and perform such duties as shall be assigned to him or her by the Board of Directors or delegated to him or her by the secretary, and in the absence or inability of the secretary to act, shall have the same general powers as the secretary.
SECTION 7. TREASURER. The treasurer shall perform such duties as shall be delegated to him or her by the Board of Directors, the chairman of the board and chief executive officer or the president.
ARTICLE V
RESIGNATIONS AND FILLING OF VACANCIES
SECTION 1. RESIGNATIONS. Any director, member of a committee or other officer may resign at any time. Such resignations shall be made in writing and shall take effect at the time specified therein and, if no time be specified, at the time of the receipt of such resignation by the chairman of the board and chief executive officer or secretary. The acceptance of the resignation shall not be necessary to make it effective.
SECTION 2. FILLING OF VACANCIES. If the office of any member of a committee or other officer becomes vacant, the vacancy may be filled only by the remaining directors in office, who, by a majority vote, may appoint any qualified person to fill such vacancy. Any vacancy on the Board of Directors, resulting from an increase in the number of directors or for any other reason, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A person appointed to fill a vacancy shall hold office for the unexpired term or until the next election of the class to which the director has been assigned, and until his successor shall be elected and qualified.
ARTICLE VI
CAPITAL STOCK
SECTION l. CERTIFICATES OF STOCK. Certificates of stock, numbered and with the seal of the Corporation affixed, signed by the chairman of the board and chief executive officer, the president or any vice president, and the secretary or an assistant secretary or the treasurer, shall be issued to each stockholder certifying the number of shares owned by such stockholder in the Corporation. Any of or all the signatures on these certificates may be facsimile. In case any officer or transfer agent who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer or transfer agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer or transfer agent at the date of issue.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. A new certificate of stock may be issued in the place of any certificate theretofore issued by the Corporation, alleged to have been lost, stolen or destroyed, and the directors may, in their discretion, require the owner of the lost, stolen or destroyed certificate, or such stockholder's legal representative, to give the Corporation a bond, in such sum as they may direct, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the Corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to
the Corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be canceled, and new certificates shall thereupon be issued. A record shall be made of each transfer, and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.
SECTION 4. DETERMINATION OF RECORD DATE.
(a) In order that the Corporation may determine the stockholders entitled
(i) to notice of or to vote at any meeting of stockholders or any adjournment
thereof, (ii) to receive payment of any dividend or other distribution or
allotment of any rights, (iii) to exercise any rights in respect of any change,
conversion or exchange of stock or (iv) to take, receive or participate in any
other lawful action, the Board of Directors may fix, in advance, a record date,
which, in the case of action involving a meeting of stockholders, shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, and which shall not be more than sixty (60) days prior to any other
action.
(b) If no record date is fixed:
(i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
(ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS. Subject to the applicable provisions of the Certificate of Incorporation, if any, and Delaware law, the directors may declare dividends upon the capital stock of the Corporation as and when they deem expedient.
ARTICLE VII
AMENDMENTS
SECTION 1. AMENDMENTS OF BYLAWS. The stockholders by the affirmative vote of at least eighty percent (80%) of the outstanding shares of capital stock of the Corporation entitled to vote in elections of directors of the Corporation considered as one class, or the directors by the affirmative vote of a majority of the directors present at any meeting at which a quorum is present, may amend or alter any of these Bylaws, provided the substance of the proposed amendment shall
have been stated in the notice of the meeting. "Voting Stock" means the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors of the Corporation.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 1. CORPORATE SEAL. The corporate seal of the Corporation shall be circular in form and shall contain the name of the Corporation, and the words "Corporate Seal, Delaware." Said seal may be used by causing it or facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be the calendar year.
SECTION 3. REGISTERED OFFICE. A registered office of the Corporation shall be established and maintained at the office of The Corporation Trust Company, in the City of Wilmington and County of New Castle, and such company shall be the registered agent of this Corporation in the State of Delaware.
SECTION 4. BANK ACCOUNTS, CHECKS, DRAFTS, NOTES. The Corporation shall maintain such bank accounts and checks upon such accounts shall be signed and/or countersigned by such officers as may be designated by resolution of the Board of Directors. Notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner as shall from time to time be determined by resolution of the Board of Directors.
SECTION 5. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these Bylaws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in a post office box in a sealed post paid wrapper, addressed to the person entitled thereto at his last known post office address, and such notice shall be deemed to have been given on the day of such mailing. Any notice required to be given under these Bylaws may be waived by the person entitled thereto. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute.
Exhibit 4.1
Edwards Lifesciences SHARES Corporation [Edwards Logo]
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE CUSIP 28176E 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NY AND JERSEY CITY, NJ
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF
ONE DOLLAR ($1) EACH OF THE COMMON STOCK of Edwards Lifesciences Corporation, transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated
Facsimile Signature Facsimile Signature
Secretary Chief Executive Officer
Countersigned and Registered:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT
AND REGISTRAR
BY [PHOTO]
AUTHORIZED SIGNATURE
[ART]
|
Edwards Lifsciences Corporation
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with the
right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT -_______________________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors Act
Act __________________________
(State)
UNIF TRF MIN ACT -_________________ Custodian (until age_________________)
(Cust)
_________________ under Uniform Transfers
(Minor)
to Minors Act _______________________
(State)
Additional abbreviations may be used though not in the above list.
For Value Received, ______________________ hereby sell, assign and transfer unto
_________________________________________________________________________ Shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint
_______________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
Dated: ________________________
THE SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR STOCK BROKER AFFILIATED WITH ONE OF THE MAJOR STOCK EXCHANGES.
Exhibit 10.3
Long-Term Stock Incentive
Compensation Program
Edwards Lifesciences Corporation
March 2000
Contents ================================================================= Article 1. Establishment, Objectives, and Duration 1 Article 2. Definitions 1 Article 3. Administration 4 Article 4. Eligibility and Participation 5 Article 5. Shares Subject to the Program and Maximum Awards 5 Article 6. Stock Options 7 Article 7. Restricted Stock 9 Article 8. Performance Units and Performance Shares 10 Article 9. Performance Measures 12 Article 10. Beneficiary Designation 13 Article 11. Deferrals 13 Article 12. Rights of Employees and Contractors 13 Article 13. Change in Control 13 Article 14. Amendment, Modification, and Termination 14 Article 15. Compliance with Applicable Law and Withholding 15 Article 16. Indemnification 17 Article 17. Successors 17 Article 18. Legal Construction 17 |
Edwards Lifesciences Corporation
Long-Term Stock Incentive Compensation Program
Article 1. Establishment, Objectives, and Duration
1.1 Establishment of the Program. Edwards Lifesciences Corporation, a Delaware corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the "Edwards Lifesciences Corporation Long-Term Stock Incentive Compensation Program" (hereinafter referred to as the "Program"), as set forth in this document. The Program permits the grant of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock, Performance Shares, and Performance Units.
The Program shall become effective as of April 1, 2000 (the "Effective Date") and shall remain in effect as provided in Section 1.3 hereof.
1.2 Objectives of the Program. The objectives of the Program are to optimize the profitability and growth of the Company through long-term incentives which are consistent with the Company's goals and which link the personal interests of Participants to those of the Company's stockholders; to provide Participants with an incentive for excellence in individual performance; and to promote teamwork among Participants. Awards generally are made in conjunction with services performed by the Participant within the previous twelve (12) months.
The Program is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants who make significant contributions to the Company's success and to allow Participants to share in the success of the Company.
1.3 Duration of the Program. The Program shall commence on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Board to amend or terminate the Program at any time pursuant to Article 14 hereof, until all Shares subject to it shall have been purchased or acquired according to the Program's provisions. However, in no event may an Award be granted under the Program on or after April 1, 2010.
Article 2. Definitions
Whenever used in the Program, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:
2.1 "Award" means, individually or collectively, a grant under this Program of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock, Performance Shares, or Performance Units.
2.2 "Award Agreement" means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Program.
2.3 "Board" or "Board of Directors" means the Board of Directors of the Company.
2.4 "Change in Control" of the Company shall mean the occurrence of any one of the following events:
(a) Any "Person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and any trustee or other fiduciary holding securities under an employee benefit plan of the Company or such proportionately owned corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; or
(b) During any period of not more than twenty-four (24) months, individuals who at the beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 2.4(a), 2.4(c), or 2.4(d) of this Section 2.4) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or
(c) The consummation of a merger or consolidation of the Company with any other entity, other than: (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or
(d) The Company's stockholders approve a plan of complete liquidation or dissolution of the Company, or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect).
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time to time.
2.6 "Committee" means the Compensation Committee or any other committee appointed by the Board to administer Awards to Participants, as specified in Article 3 herein.
2.7 "Company" means Edwards Lifesciences Corporation, a Delaware corporation, and any successor thereto as provided in Article 17 herein.
2.8 "Contractor" means an individual providing services to the Company who is not an Employee or member of the Board, and who does not participate in the Edwards Lifesciences Corporation Nonemployee Directors and Consultants Stock Incentive Program.
2.9 "Covered Employee" means a Participant who, as of the date of vesting and/or payout of an Award, as applicable, is one of the group of "covered employees," as defined in the regulations promulgated under Code Section 162(m), or any successor statute.
2.10 "Disability" shall have the meaning ascribed to such term in the Participant's governing long-term disability plan, or if no such plan exists, at the discretion of the Board.
2.11 "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.12 "Employee" means any employee of the Company or of a Subsidiary of the Company. Directors who are employed by the Company shall be considered Employees under this Program. For the purposes of this definition, "Subsidiary" means any business, whether or not incorporated, in which the Company has a direct or indirect ownership interest.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
2.14 "Fair Market Value" means, at any date, the closing sale price on the principal securities exchange on which the Shares are traded on the last previous day on which a sale was reported.
2.15 "Incentive Stock Option" or "ISO" means an option to purchase Shares granted under Article 6 herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Code Section 422.
2.16 "Insider" shall mean an individual who is, on the relevant date, an officer, director, or ten percent (10%) beneficial owner of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.
2.17 "Nonqualified Stock Option" or "NQSO" means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Code Section 422.
2.18 "Option" means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.
2.19 "Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option.
2.20 "Participant" means an Employee or Contractor who has been selected to receive an Award or who has outstanding an Award granted under the Program.
2.21 "Performance-Based Exception" means the performance-based exception from the tax deductibility limitations of Code Section 162(m).
2.22 "Performance Share" means an Award granted to a Participant, as described in Article 8 herein.
2.23 "Performance Unit" means an Award granted to a Participant, as described in Article 8 herein.
2.24 "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, in its discretion), and the Shares are subject to a substantial risk of forfeiture, as provided in Article 7 herein.
2.25 "Restricted Stock" means an Award granted to a Participant pursuant to Article 7 herein.
2.26 "Retirement" means, unless otherwise defined in the applicable Award Agreement, any termination of an Employee's employment or a Contractor's service after age fifty-five (55) other than due to death or Disability, provided that such Employee or Contractor has at least a combined ten (10) years of service with the Company and Baxter International Inc. A Participant's number of years of service with the Company and Baxter International, Inc. shall be determined by calculating the number of complete twelve-month (12) periods of employment from the Participant's original date of hire as an Employee or Contractor with the Company or Baxter International, Inc. to the Participant's date of employment or service termination.
2.27 "Shares" means the shares of common stock of the Company.
Article 3. Administration
3.1 General. The Program shall be administered by the Compensation Committee of the Board, or by any other Committee appointed by the Board, which shall consist of two (2) or more nonemployee directors within the meaning of the rules promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act who also qualify as outside directors within the meaning of Code Section 162(m) and the related regulations under the Code, except as otherwise determined by the Board. Any Committee administering the Program shall be comprised entirely of directors. The members of the Committee shall be appointed from time to time by, and shall serve at the sole discretion of, the Board. The Committee shall have the authority to delegate administrative duties to officers, Employees, or directors of the Company; provided, however, that the Committee shall not be able to delegate its authority with respect to: (i) granting Awards to Insiders; (ii) granting Awards to Covered Employees that are intended to qualify for the Performance-Based Exception; and (iii) certifying that any performance goals and other material terms attributable to Awards to Covered Employees that are intended to qualify for the Performance-Based Exception have been satisfied.
3.2 Authority of the Committee. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions of the Program, the Committee shall have the authority to: (a) interpret the provisions of the Program, and prescribe, amend, and rescind rules and procedures relating to the Program; (b) grant Awards under the Program, in such forms and amounts and subject to such terms and conditions as it deems appropriate, including, without limitation, Awards which are made in combination with or in tandem with other Awards (whether or not contemporaneously granted) or compensation or in lieu of current or deferred
compensation; (c) subject to Article 14, modify the terms of, cancel and reissue, or repurchase outstanding Awards; (d) prescribe the form of agreement, certificate, or other instrument evidencing any Award under the Program; (e) correct any defect or omission and reconcile any inconsistency in the Program or in any Award hereunder; (f) to design Awards to satisfy requirements to make such Awards tax-advantaged to Participants in any jurisdiction or for any other reason that the Company desires; and (g) make all other determinations and take all other actions as it deems necessary or desirable for the administration of the Program; provided, however, that it is the Company's intent that no outstanding Option will be canceled for the purpose of reissuing such Option to a Participant at a lower exercise price. The determination of the Committee on matters within its authority shall be conclusive and binding on the Company and all other persons. The Committee shall comply with all applicable law in administering the Plan. As permitted by law (and subject to Section 3.1 herein), the Committee may delegate its authority as identified herein.
3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Program and all related orders and resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its stockholders, directors, Employees, Contractors, Participants, and their estates and beneficiaries.
Article 4. Eligibility and Participation
4.1 Eligibility. Persons eligible to participate in this Program shall
include all Employees and Contractors. Directors who are not Employees of the
Company shall not be eligible to participate in the Program.
4.2 Actual Participation. Subject to the provisions of the Program, the Committee may, from time to time, select from all eligible Employees and Contractors those to whom Awards shall be granted and shall determine the nature and amount of each Award.
Article 5. Shares Subject to the Program and Maximum Awards
5.1 Number of Shares Available for Grants. Subject to adjustment as
provided in Section 5.4 herein, the number of Shares hereby reserved for
delivery to Participants under the Program shall be twelve million five hundred
thousand (12,500,000) Shares. No more than five hundred thousand (500,000)
Shares reserved for issuance under the Program may be granted in the form of
Shares of Restricted Stock. The Committee shall determine the appropriate
methodology for calculating the number of Shares issued pursuant to the Program.
Unless and until the Committee determines that an Award to a Covered Employee
shall not be designed to comply with the Performance-Based Exception, the
following rules shall apply to grants of such Awards under the Program:
(a) Options: The maximum aggregate number of Shares that may be granted in the form of Options in any one (1) fiscal year to any one (1) Participant shall be one million (1,000,000).
(b) Restricted Stock: The maximum aggregate number of Shares that may be granted in the form of Restricted Stock in any one (1) fiscal year to any one (1) Participant shall be fifty thousand (50,000).
(c) Performance Shares: The maximum aggregate payout (determined as of the end of the applicable performance period) with respect to Awards of Performance Shares granted in any one (1) fiscal year to any one (1) Participant shall be equal to the value of one hundred thousand (100,000) Shares.
(d) Performance Units: The maximum aggregate payout (determined as of the end of the applicable performance period) with respect to Awards of Performance Units granted in any one (1) fiscal year to any one (1) Participant shall be equal to two million dollars ($2,000,000).
5.2 Type of Shares. Shares issued under the Program in connection with Stock Options and Performance Shares may be authorized and unissued Shares or issued Shares held as treasury Shares. Shares issued under the Program in connection with Restricted Stock shall be issued Shares held as treasury Shares; provided, however, that authorized and unissued Shares may be issued in connection with Restricted Stock to the extent that the Committee determines that past services of the Participant constitute adequate consideration for at least the par value thereof.
5.3 Reusage of Shares.
(a) General. In the event of the exercise or termination (by reason of forfeiture, expiration, cancellation, surrender, or otherwise) of any Award under the Program, that number of Shares that was subject to the Award but not delivered shall again be available as Awards under the Program.
(b) Restricted Stock. In the event that Shares are delivered under the Program as Restricted Stock and are thereafter forfeited or reacquired by the Company pursuant to rights reserved upon the grant thereof, such forfeited or reacquired Shares shall again be available as Awards under the Program.
(c) Limitation. Notwithstanding the provisions of Sections 5.3(a) or 5.3(b) above, the following Shares shall not be available for reissuance under the Program: (i) Shares which are withheld from any Award or payment under the Program to satisfy tax withholding obligations (as described in Section 15.3; (ii) Shares which are surrendered to fulfill tax obligations (as described in Section 15.4; and (iii) Shares which are surrendered in payment of the Option Price upon the exercise of an Option.
5.4 Adjustments in Authorized Shares. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 5.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Program, and in the Award limits set forth
in Section 5.1, as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of rights;
provided, however, that the number
of Shares subject to any Award shall always be a whole number. In a stock-for- stock acquisition of the Company, the Committee may, in its sole discretion, substitute securities of another issuer for any Shares subject to outstanding Awards.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Program,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee. If
all or any portion of the exercise price or taxes incurred in connection with
the exercise are paid by delivery (or, in the case of payment of taxes, by
withholding of Shares) of other Shares of the Company, the Options may provide
for the grant of replacement Options.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement also shall specify whether the Option is intended to be an ISO or an NQSO.
6.3 Option Price. The Option Price for each grant of an Option under this Program shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted. The only exception to the foregoing shall be for Options issued to Participants upon the conversion of their Baxter International, Inc. stock options at the time of the Company's spin-off from Baxter International, Inc.
6.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary date of its grant.
6.5 Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.
6.6 Payment. Options granted under this Article 6 shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent; or (b) by tendering previously acquired Shares (by either actual delivery or attestation) having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered must have been held by the Participant for at least six (6) months prior to their tender to satisfy the Option Price); or (c) by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Board determines to be consistent with the Program's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name (or, at the direction of the Participant, jointly in the names of the Participant and the Participant's spouse), Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).
6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.
6.8 Termination of Employment or Service. Each Participant's Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's employment with the Company or service to the Company as a Contractor. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Article 6, and may reflect distinctions based on the reasons for termination.
6.9 Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Program may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Program shall be exercisable during his or her lifetime only by such Participant.
(b) Nonqualified Stock Options. Except as otherwise provided in a Participant's Award Agreement, no NQSO granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all NQSOs granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant.
6.10 Substitution of Cash. Unless otherwise provided in a Participant's
Award Agreement, and notwithstanding any provision in the Program to the
contrary (including but not limited to Section 14.3), in the event of a Change
in Control in which the Company's stockholders holding Shares receive
consideration other than shares of common stock that are registered under
Section 12 of the Exchange Act, the Committee shall have the authority to
require that any outstanding Option be surrendered to the Company by a
Participant for cancellation by the Company, with the Participant receiving in
exchange a cash payment from the Company within ten (10) days of the Change in
Control. Such cash payment shall be equal to the number of Shares under Option,
multiplied by the excess, if any, of the greater of (i) the highest per Share
price offered to stockholders in any transaction whereby the Change in Control
takes place, or (ii) the Fair Market Value of a Share on the date the Change in
Control occurs, over the Option Price.
Article 7. Restricted Stock
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Program, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Committee shall determine.
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine.
7.3 Restriction on Transferability. Except as provided in this Article 7, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Award Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Program shall be available during his or her lifetime only to such Participant.
7.4 Other Restrictions. Subject to Article 9 herein, the Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Program as it may deem advisable including, without limitation, any or all of the following:
(a) A required period of employment or service as a Contractor with the Company, as determined by the Committee, prior to the vesting of Shares of Restricted Stock.
(b) A requirement that Participants forfeit (or in the case of Shares sold to a Participant, resell to the Company at his or her cost) all or a part of Shares of Restricted Stock in the event of termination of his or her employment or service as a Contractor during the Period of Restriction.
(c) A prohibition against employment of Participants holding Shares of Restricted Stock by any competitor of the Company, against such Participants' dissemination of any secret or confidential information belonging to the Company, or the solicitation by Participants of the Company's employees for employment by another entity.
Shares of Restricted Stock awarded pursuant to the Program shall be registered in the name of the Participant and, if such Shares are certificated, in the sole discretion of the Committee, may be deposited in a bank designated by the Committee or with the Company. The Committee may require a stock power endorsed in blank with respect to Shares of Restricted Stock whether or not certificated.
Except as otherwise provided in this Article 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Program shall become freely transferable (subject to any restrictions under any applicable securities law) by the Participant after the last day of the applicable Period of Restriction.
7.5 Voting Rights. At the Committee's sole discretion, Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction.
7.6 Dividends and Other Distributions. At the Committee's sole discretion, during the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may be credited with regular cash dividends paid with respect to the underlying Shares while they are so held. The Committee may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding sentence, if the grant or vesting of Shares of Restricted Stock granted to a Covered Employee is designed to comply with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Shares of Restricted Stock, such that the dividends and/or the Shares of Restricted Stock maintain eligibility for the Performance-Based Exception.
7.7 Termination of Employment or Service. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive unvested Shares of Restricted Stock following termination of the Participant's employment with the Company or service to the Company as a Contractor. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock issued pursuant to the Program, and may reflect distinctions based on the reasons for termination; provided, however that, except in the cases of terminations connected with a Change in Control and terminations by reason of death or Disability, the vesting of Shares of Restricted Stock which qualify for the Performance-Based Exception and which are held by Covered Employees shall occur at the time they otherwise would have, but for the termination.
Article 8. Performance Units and Performance Shares
8.1 Grant of Performance Units/Shares. Subject to the terms of the Program, Performance Units and/or Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
8.2 Value of Performance Units/Shares. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. The Committee shall set performance goals in its sole discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units/Shares that will be paid out to the Participant. For purposes of this Article 8, the time period during which the performance goals must be met shall be called a "Performance Period."
8.3 Earning of Performance Units/Shares. Subject to the terms of this Program, after the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive payout on the number and value of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved.
8.4 Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares shall be made in a single lump sum following the close of the applicable Performance Period. Subject to the terms of this Program, the Committee, in its sole discretion, may pay earned Performance Units/Shares in the form of cash or in Shares (or in a combination thereof) which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period. Such Shares may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.
At the discretion of the Committee, Participants may be entitled to receive
any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance Shares which have
been earned, but not yet distributed to Participants (such dividends shall be
subject to the same accrual, forfeiture, and payout restrictions as apply to
dividends earned with respect to Shares of Restricted Stock, as set forth in
Section 7.6 herein). In addition, Participants may, at the discretion of the
Committee, be entitled to exercise their voting rights with respect to such
Shares.
8.5 Termination of Employment or Service Due to Death, Disability, or Retirement. Unless determined otherwise by the Committee and set forth in the Participant's Award Agreement, following termination of the Participant's employment with the Company or service to the Company as a Contractor, by reason of death, Disability, or Retirement during a Performance Period, the Participant or his legal representative shall receive a payout of the Performance Units/Shares which is prorated, as specified by the Committee in its discretion.
Payment of earned Performance Units/Shares shall be made at a time specified by the Committee in its sole discretion and set forth in the Participant's Award Agreement. Notwithstanding the foregoing, with respect to Covered Employees who retire during a Performance Period, payments shall be made at the same time as payments are made to Participants who did not terminate employment during the applicable Performance Period.
8.6 Termination of Employment or Service for Other Reasons. In the event that a Participant's employment or service to the Company as a Contractor terminates for any reason other than those reasons set forth in Section 8.5 herein, all Performance Units/Shares shall be forfeited by the Participant to the Company unless determined otherwise by the Committee, as set forth in the Participant's Award Agreement.
8.7 Nontransferability. Except as otherwise provided in a Participant's Award Agreement, Performance Units/Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, a Participant's rights under the Program shall be exercisable during the Participant's lifetime only by the Participant or the Participant's legal representative.
Article 9. Performance Measures
Unless and until the Board proposes for stockholder vote and stockholders approve a change in the general performance measures set forth in this Article 9, the attainment of which may determine the degree of payout and/or vesting with respect to Awards to Covered Employees which are designed to qualify for the Performance-Based Exception, the performance measure(s) to be used for purposes of such grants shall be chosen from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Return measures (including, but not limited to, return on assets, capital, equity, or sales);
(d) Cash flow return on investments which equals net cash flows divided by owners' equity;
(e) Gross revenues;
(f) Market-to-book value ratio;
(g) Share price (including, but not limited to, growth measures and total shareholder return);
(h) Working capital measures;
(i) Economic value added; and
(j) The percentage of sales generated by new products.
Subject to the terms of the Program, each of these measures shall be defined by the Committee on a corporation or subsidiary basis or in comparison with peer group performance, and may include or exclude specified extraordinary items, as determined by the corporation's auditors.
The Committee shall have the discretion to adjust the determinations of the degree of attainment of the preestablished performance goals or the size of Awards; provided, however, that Awards which are designed to qualify for the Performance-Based Exception, and which are held by Covered Employee, may not be adjusted upward in terms of either the degree of goal attainment or size (the Committee shall retain the discretion to adjust the degree of goal attainment or the size of the Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards that shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
Article 10. Beneficiary Designation
Each Participant under the Program may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Program is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate.
Article 11. Deferrals
The Committee may permit or require a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option, lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any performance goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.
Article 12. Rights of Employees and Contractors
12.1 Employment. Nothing in the Program or any Award Agreement shall interfere with or limit in any way the right of the Company to terminate at any time any Participant's employment or service to the Company as a Contractor, nor confer upon any Participant any right to continue in the employ of the Company or to provide services to the Company as a Contractor.
12.2 Participation. No Employee or Contractor shall have the right to be selected to receive an Award under this Program, or, having been so selected, to be selected to receive a future Award.
Article 13. Change in Control
13.1 Treatment of Outstanding Awards. Except as may otherwise be provided in a Participant's Award Agreement, and subject to Section 13.3, upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:
(a) Any and all Options granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term;
(b) Any restriction periods and restrictions imposed on Share of Restricted Stock that are not performance-based shall lapse;
(c) The vesting of all performance-based Awards denominated in Shares such as performance-based Restricted Stock and Performance Shares shall be accelerated as of the effective date of the Change in Control, and there shall be paid out to Participants within thirty (30) days following the effective date of the Change in Control a pro rata number of Shares based upon an assumed achievement of all relevant targeted performance goals and upon the length of time within the Performance Period(s) which has elapsed prior to the Change in Control. The vesting of Awards denominated in cash, such as Performance Units, shall also be accelerated as of effective date of the Change in Control and there shall be paid out to Participants within thirty (30) days following the effective date of the Change in Control a pro rata cash payment with the proration determined as a function of the length of time within the Performance Period(s) which has elapsed prior to the Change in Control, and based on an assumed achievement of all relevant targeted performance goals.
13.2 Termination, Amendment, and Modifications of Change-in-Control Provisions. Notwithstanding any other provision of this Program (but subject to the limitations of Section 13.3 hereof) or any Award Agreement provision, the provisions of this Article 13 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Program without the prior written consent of the Participant with respect to said Participant's outstanding Awards; provided, however, the Board may terminate, amend, or modify this Article 13 at any time and from time to time prior to the date of a Change in Control.
13.3 Pooling of Interests Accounting. Notwithstanding any provision of the Program or of any Award Agreement to the contrary, in the event that the consummation of a Change in Control is contingent on using pooling of interests accounting methodology, the Board may, in its sole discretion, take any action necessary to preserve the use of pooling of interests accounting.
Article 14. Amendment, Modification, and Termination
14.1 Amendment, Modification, and Termination. Subject to the terms of the Program, the Board may at any time and from time to time, alter, amend, suspend or terminate the Program in whole or in part.
14.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 5.4 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Program; provided that, unless the
Committee determines otherwise at the time such adjustment is considered, no
such adjustment shall be authorized to the extent that such authority would be
inconsistent with the Program's meeting the requirements of Section 162(m) of
the Code, as from time to time amended.
14.3 Awards Previously Granted. Notwithstanding any provision of the Program or of any Award Agreement to the contrary (but subject to Sections 6.10 and 13.3 hereof), no termination, amendment, or modification of the Program shall adversely affect in any material way any Award previously granted under the Program, without the written consent of the Participant holding such Award.
14.4 Compliance with Code Section 162(m). At all times when Code Section 162(m) is applicable, all Awards granted under this Program to a Covered Employee shall comply with the requirements of Code Section 162(m); provided, however, that in the event the Committee determines that such compliance is not desired with respect to any Award or Awards available for grant under the Program, then compliance with Code Section 162(m) will not be required. In addition, in the event that changes are made to Code Section 162(m) to permit greater flexibility with respect to any Award or Awards available under the Program, the Committee may, subject to this Article 14, make any adjustments it deems appropriate.
Article 15. Compliance with Applicable Law and Withholding
15.1 General. The granting of Awards and the issuance of Shares under the Program shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding anything to the contrary in the Program or any Award Agreement, the following shall apply:
(a) The Company shall have no obligation to issue any Shares under the Program if such issuance would violate any applicable law or any applicable regulation or requirement of any securities exchange or similar entity.
(b) Prior to the issuance of any Shares under the Program, the Company may require a written statement that the recipient is acquiring the Shares for investment and not for the purpose or with the intention of distributing the Shares and that the recipient will not dispose of them in violation of the registration requirements of the Securities Act of 1933.
(c) With respect to any person who is subject to Section 16(a) of the Exchange Act, the Committee may, at any time, add such conditions and limitations to any incentive or payment under the Program or implement procedures for the administration of the Program which it deems necessary or desirable to comply with the requirements of Rule 16b-3 of the Exchange Act.
(d) If, at any time, the Company, determines that the listing, registration, or qualification (or any updating of any such document) of any Award, or the Shares issuable pursuant thereto, is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, any Award, the issuance of Shares pursuant to any Award, or the removal of any restrictions imposed on Shares subject to an Award, such Award shall not be granted and the Shares shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company.
15.2 Securities Law Compliance. With respect to Insiders, transactions under this Program are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Program or action by the Committee or the Board fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board.
15.3 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Program.
15.4 Share Withholding. With respect to withholding required upon any taxable event arising as a result of Awards payable in Shares granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares to satisfy their tax obligations. With respect to withholding required upon the exercise of Options, or upon the lapse of restrictions on Shares of Restricted Stock, Participants may only elect to have Shares withheld having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory withholding tax which could be imposed on the transaction. All elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
Article 16. Indemnification
Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Program and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgement in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
Article 17. Successors
All obligations of the Company under the Program with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
Article 18. Legal Construction
18.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
18.2 Severability. In the event any provision of the Program shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Program, and the Program shall be construed and enforced as if the illegal or invalid provision had not been included.
18.3 Governing Law. To the extent not preempted by federal law, the Program, and all Award or other agreements hereunder, shall be construed in accordance with and governed by the laws of the state of Delaware without giving effect to principles of conflicts of laws.
Exhibit 10.4
Change-in-Control Severance Agreement
Edwards Lifesciences Corporation
March 2000
Contents
-------------------------------------------------------------------------------- Article 1. Definitions 1 Article 2. Severance Benefits 5 Article 3. Form and Timing of Severance Benefits 7 Article 4. Excise Tax 7 Article 5. The Company's Payment Obligation 8 Article 6. Term of Agreement 8 Article 7. Legal Remedies 9 Article 8. Successors 9 Article 9. Miscellaneous 9 |
Change-in-Control Severance Agreement
Edwards Lifesciences Corporation
THIS CHANGE-IN-CONTROL SEVERANCE AGREEMENT is made, entered into, as is effective this _______________day of ____________, 2000 (hereinafter referred to as the "Effective Date"), by and between Edwards Lifesciences Corporation (the "Company"), a Delaware corporation, and _____________________ (the "Executive").
WHEREAS, the Executive is currently employed by the Company in a key management capacity; and
WHEREAS, the Executive possesses considerable experience and knowledge of the business and affairs of the Company concerning its policies, methods, personnel, and operations; and
WHEREAS, the Company is desirous of assuring insofar as possible, that it will continue to have the benefit of the Executive's services; and the Executive is desirous of having such assurances; and
WHEREAS, the Company recognizes that circumstances may arise in which a Change in Control of the Company occurs, through acquisition or otherwise, thereby causing uncertainty of employment without regard to the Executive's competence or past contributions. Such uncertainty may result in the loss of the valuable services of the Executive to the detriment of the Company and its shareholders; and
WHEREAS, both the Company and the Executive are desirous that any proposal for a Change in Control will be considered by the Executive objectively and with reference only to the business interests of the Company and its shareholders; and
WHEREAS, the Executive will be in a better position to consider the Company's best interests if the Executive is afforded reasonable security, as provided in this Agreement, against altered conditions of employment which could result from any such Change in Control.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
Article 1. Definitions
Wherever used in this Agreement, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
1.1 "Agreement" means this Change-in-Control Severance Agreement.
1.2 "Base Salary" means, at any time, the then-regular annual rate of pay which the Executive is receiving as annual salary, excluding amounts: (i) received under short- or long-term incentive or other bonus plans, regardless of whether or not the amounts are deferred or (ii) designated by the Company as payment toward reimbursement of expenses.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Cause" shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:
(i) The Executive's willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Executive's Disability) after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Committee believes that the Executive has not substantially performed his duties, and the Executive has failed to remedy the situation within fifteen (15) business days of such written notice from the Company; or
(ii) The Executive's willfully engaging in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; or
(iii) The Executive's conviction of a felony.
However, no act or failure to act on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
1.5 "Change in Control" of the Company shall mean the occurrence of any one of the following events:
(a) Any "Person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (as amended) (other than the Company, any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and any trustee or other fiduciary holding securities under an employee benefit plan of the Company or such proportionately owned corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; or
(b) During any period of not more than twenty-four (24) months, individuals who at the beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 1.5(a), 1.5(c), or 1.5(d) of this Section 1.5) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or
(c) The consummation of a merger or consolidation of the Company with any other entity, other than: (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or
(d) The Company's stockholders approve a plan of complete liquidation or dissolution of the Company, or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect).
1.6 "Code" means the Internal Revenue Code of 1986, as amended.
1.7 "Committee" means the Compensation Committee of the Board of Directors of the Company, or, if no Compensation Committee exists, then the full Board of Directors of the Company, or a committee of Board members, as appointed by the full Board to administer this Agreement.
1.8 "Company" means Edwards Lifesciences Corporation, a Delaware corporation (including any and all subsidiaries), or any successor thereto as provided in Article 8 herein.
1.9 "Disability" shall have the meaning ascribed to such term in the Executive's governing long-term disability plan, or if no such plan exists, at the discretion of the Board.
1.10 "Effective Date" means the date this Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving this Agreement, and as specified in the opening sentence of this Agreement.
1.11 "Effective Date of Termination" means the date on which a Qualifying Termination occurs, as provided in Section 2.2 herein, which triggers the payment of Severance Benefits hereunder.
1.12 "Good Reason" means, without the Executive's express written consent, the occurrence after a Change in Control of the Company of any one or more of the following:
(i) The assignment of the Executive to duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements) as an executive and/or officer of the Company, or a material reduction or alteration in the nature or status of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) calendar days prior to the Change in Control, other than an insubstantial and inadvertent act that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(ii) The Company's requiring the Executive to be based at a location in excess of fifty (50) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on the Company's business to an extent substantially consistent with the Executive's then present business travel obligations;
(iii) A reduction by the Company of the Executive's Base Salary in effect on the Effective Date hereof, or as the same shall be increased from time to time;
(iv) The failure of the Company to continue in effect any of the Company's short- and long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Executive participates unless such failure to continue the plan, policy, practice, or arrangement pertains to all plan participants generally; or the failure by the Company to continue the Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control of the Company;
(v) The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform the Company's obligations under this Agreement, as contemplated in Article 8 herein; and
(vi) The Company, or any successor company, commits a material breach of any of the material provisions of this Agreement.
The Executive's right to terminate employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein.
1.13 "Qualifying Termination" means any of the events described in Section 2.2 herein, the occurrence of which triggers the payment of Severance Benefits hereunder.
1.14 "Severance Benefits" means the payment of severance compensation as provided in Section 2.3 herein.
Article 2. Severance Benefits
2.1 Right to Severance Benefits. The Executive shall be entitled to receive from the Company Severance Benefits as described in Section 2.3 herein, if there has been a Change in Control of the Company and if, within twenty-four (24) calendar months thereafter, the Executive's employment with the Company shall end for any reason specified in Section 2.2 herein as being a Qualifying Termination.
The Executive shall not be entitled to receive Severance Benefits if he is terminated for Cause, or if his employment with the Company ends due to death, Disability, voluntary normal retirement (as defined under the then established rules of the Company's tax-qualified retirement plan), or due to a voluntary termination of employment for a reason other than that specified in Section 2.2(b) herein.
2.2 Qualifying Termination. The occurrence of either of the following events within twenty-four (24) calendar months after a Change in Control of the Company shall trigger the payment of Severance Benefits to the Executive under this Agreement:
(a) The Company's involuntary termination of the Executive's employment without Cause; or
(b) The Executive's voluntary employment termination for Good Reason.
In addition, if the Executive's employment is involuntarily terminated without Cause by the Company within six (6) months prior to a Change in Control, such termination shall also be considered a Qualifying Termination occurring during the twenty-four (24) month period following a Change in Control. For purposes of this Agreement, a Qualifying Termination shall not include a termination of employment by reason of death, Disability, or voluntary normal retirement (as such term is defined under the then established rules of the Company's tax-qualified retirement plan), the Executive's voluntary termination for a reason other than that specified in Section 2.2(b) herein, or the Company's involuntary termination for Cause.
2.3 Description of Severance Benefits. In the event that the Executive becomes entitled to receive Severance Benefits, as provided in Sections 2.1 and 2.2 herein, the Company shall pay to the Executive and provide him with total Severance Benefits equal to all of the following:
(a) A lump-sum amount equal to the Executive's unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and all other items earned by and owed to the Executive through and including the Effective Date of Termination.
(b) A lump-sum amount equal to the Executive's annual target bonus amount, established under the annual bonus plan in which the Executive is then participating, for the bonus plan year in which the Executive's Effective Date of Termination occurs, multiplied by a fraction the numerator of which is the number of full completed months in the bonus plan year through the Effective Date of
Termination, and the denominator of which is twelve (12). This payment will be in lieu of any other payment to be made to the Executive under the annual bonus plan in which the Executive is then participating for that plan year.
(c) A lump-sum amount equal to three (3) multiplied by the higher of the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination, or the Executive's highest annual rate of Base Salary in effect during the twelve (12) months preceding the date of the Change in Control.
(d) A lump-sum amount equal to three (3) multiplied by the higher of the Executive's annual target bonus established under the annual bonus plan in which the Executive is then participating for the bonus plan year in which the Executive's Effective Date of Termination occurs, or the actual annual bonus payment made to the Executive under the annual bonus plan in which the Executive participated in the year preceding the year in which the Effective Date of Termination occurs.
(e) All long-term incentive awards shall be subject to the treatment provided under the Company's Long-Term Stock Incentive Compensation Program (as amended, or any successor plans thereto) and/or the applicable award agreements thereunder.
(f) A continuation for thirty-six (36) months of the Executive's medical insurance and dental insurance coverage. These benefits shall be provided by the Company to the Executive beginning immediately upon the Effective Date of Termination. Such benefits shall be provided to the Executive at the same coverage level (with all premium costs borne by the Company) as in effect as of the Executive's Effective Date of Termination for a period of thirty-six (36) months following the Executive's Effective Date of Termination.
Notwithstanding the above, these medical and dental insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Committee in good faith. However, if the benefits received from the subsequent employer do not cover the preexisting medical conditions of the Executive or a covered member of the Executive's family, the continuation period shall continue, but not beyond the thirty-sixth (36th) month following the Executive's Effective Date of Termination. For purposes of enforcing this offset provision, the Executive shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.
(g) For a period of up to thirty-six (36) months following a Change in Control, the Executive shall be entitled, at the expense of the Company, to receive standard outplacement services from a nationally recognized outplacement firm of the Executive's selection. However, the Company's total obligation shall not exceed seventy-five thousand dollars ($75,000.00).
2.4 Termination due to Disability. Following a Change in Control, if the Executive's employment is terminated with the Company due to Disability, the Executive's benefits shall be determined in accordance with the Company's retirement, insurance, and other applicable plans and programs then in effect.
2.5 Termination due to Retirement or Death. Following a Change in Control, if the Executive's employment with the Company is terminated by reason of his voluntary normal retirement (as defined under the then established rules of the Company's tax-qualified retirement plan), or death, the Executive's benefits shall be determined in accordance with the Company's retirement, survivor's benefits, insurance, and other applicable programs then in effect.
2.6 Termination for Cause or by the Executive Other Than for Good Reason. Following a Change in Control, if the Executive's employment is terminated either: (i) by the Company for Cause; or (ii) voluntarily by the Executive for a reason other than that specified in Section 2.2(b) herein, the Company shall pay the Executive his full Base Salary at the rate then in effect, accrued vacation, and other items earned by and owed to the Executive through the Effective Date of Termination, plus all other amounts to which the Executive is entitled under any compensation plans of the Company at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement.
2.7 Notice of Termination. Any termination of the Executive's employment by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated.
Article 3. Form and Timing of Severance Benefits
3.1 Form and Timing of Severance Benefits. The Severance Benefits described in Sections 2.3(a), 2.3(b), 2.3(c), and 2.3(d) herein shall be paid in cash to the Executive in a single lump sum as soon as practicable following the Effective Date of Termination, but in no event beyond ten (10) calendar days from such date.
3.2 Withholding of Taxes. The Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as legally shall be required.
Article 4. Excise Tax
4.1 Excise Tax Payment. If any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of the Company (in the aggregate, "Total Payments") would constitute an "excess parachute payment," such that a golden parachute excise tax is due, the Company shall provide to the Executive, in cash, an additional payment in an amount sufficient to cover the full cost of any excise tax and all of the Executive's additional state and federal income, excise, and employment taxes that arise on this additional payment (cumulatively, the "Full Gross-Up Payment"), such that the Executive is in the same after-tax position as if he had not been subject to the excise tax. For this purpose, the Executive shall be deemed to be in the highest marginal rate of federal and state taxes. This payment shall be made as
soon as possible following the date of the Executive's Qualifying Termination, but in no event later than ten (10) calendar days from such date.
For purposes of this Agreement, the term "excess parachute payment" shall have the meaning assigned to such term in Section 280G of the Internal Revenue Code, as amended (the "Code"), and the term "excise tax" shall mean the tax imposed on such excess parachute payment pursuant to Sections 280G and 4999 of the Code.
4.2 Subsequent Recalculation. In the event the Internal Revenue Service subsequently adjusts the excise tax computation herein described, the Company shall reimburse the Executive for the full amount necessary to make the Executive whole on an after-tax basis (less any amounts received by the Executive that the Executive would not have received had the computations initially been computed as subsequently adjusted), including the value of any underpaid excise tax, and any related interest and/or penalties due to the Internal Revenue Service.
Article 5. The Company's Payment Obligation
5.1 Payment Obligations Absolute. The Company's obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever.
The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Section 2.3(f) herein.
5.2 Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.
Article 6. Term of Agreement
This Agreement will commence on the Effective Date first written above, and shall continue in effect irrevocably for three (3) full calendar years. However, at the end of the first year of such three-year (3) period, this Agreement shall be extended automatically for one (1) additional year, unless the Company notifies the Executive in writing, prior to the occurrence of the automatic extension, that the term of this Agreement will not be extended. Moreover, upon the end of each subsequent year, this Agreement shall also be extended automatically for one (1) additional year, unless the Company otherwise notifies the Executive in writing prior to the occurrence of such automatic extension. In the case where the Company properly notifies the Executive that the
Agreement will no longer be extended, the Agreement will terminate at the end of the term, or extended term, then in progress.
However, in the event a Change in Control occurs during the original or any extended term, this Agreement will remain in effect for twenty-four (24) months beyond the month in which such Change in Control occurred.
Article 7. Legal Remedies
7.1 Dispute Resolution. The Executive shall have the right and option to elect to have any good faith dispute or controversy arising under or in connection with this Agreement settled by litigation or arbitration. If arbitration is selected, such proceeding shall be conducted by final and binding arbitration before a panel of three (3) arbitrators in accordance with the laws and under the administration of the American Arbitration Association.
7.2 Payment of Legal Fees. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or to incur other costs and expenses in connection with the enforcement of any or all of his rights under this Agreement, the Company shall pay (or the Executive shall be entitled to recover from the Company) the Executive's attorneys' fees, costs, and expenses in connection with a good faith enforcement of his rights including the enforcement of any arbitration award. This shall include, without limitation, court costs and attorneys' fees incurred by the Executive as a result of any good faith claim, action, or proceeding, including any such action against the Company arising out of, or challenging the validity or enforceability of this Agreement or any provision hereof.
Article 8. Successors
The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) of all or a significant portion of the assets of the Company by agreement, in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law and such successor shall be deemed the "Company" for purposes of this Agreement.
Article 9. Miscellaneous
9.1 Employment Status. This Agreement is not, and nothing herein shall be deemed to create, an employment contract between the Executive and the Company or any of its subsidiaries. Subject to the terms of any employment contract between the Executive and the Company, the Executive acknowledges that the rights of the Company remain wholly intact to change or reduce at any time and from time to time his compensation, title, responsibilities, location, and all other aspects of the employment relationship, or to discharge him prior to a Change in Control (subject to such discharge possibly being considered a Qualifying Termination pursuant to Section 2.2).
9.2 Entire Agreement. This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. In addition, the payments provided for under this Agreement in the event of the Executive's termination of employment shall be in lieu of any severance benefits payable under any employment contract between the Executive and the Company or any severance plan, program, or policy of the Company to which he might otherwise be entitled.
9.3 Notices. All notices, requests, demands, and other communications hereunder shall be sufficient if in writing and shall be deemed to have been duly given if delivered by hand or if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal offices.
9.4 Execution in Counterparts. This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed to be original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart.
9.5 Conflicting Agreements. The executive hereby represents and warrants to the Company that his entering into this Agreement, and the obligations and duties undertaken by him hereunder, will not conflict with, constitute a breach of, or otherwise violate the terms of, any other employment or other agreement to which he is a party, except to the extent any such conflict, breach, or violation under any such agreement has been disclosed to the Board in writing in advance of the signing of this Agreement.
9.6 Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect.
Notwithstanding any other provisions of this Agreement to the contrary, the Company shall have no obligation to make any payment to the Executive hereunder to the extent, but only to the extent, that such payment is prohibited by the terms of any final order of a Federal or state court or regulatory agency of competent jurisdiction; provided, however, that such an order shall not affect, impair, or invalidate any provision of this Agreement not expressly subject to such order.
9.7 Modification. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Executive and by a member of the Board, as applicable, or by the respective parties' legal representatives or successors.
9.8 Applicable Law. To the extent not preempted by the laws of the United States, the laws of Delaware shall be the controlling law in all matters relating to this Agreement without giving effect to principles of conflicts of laws.
IN WITNESS WHEREOF, the parties have executive this Agreement on this _______________ day of ________________, 2000.
ATTEST Edwards Lifesciences Corporation
By: ________________________ By:_______________________
Corporate Secretary Title:______________________
__________________________
Executive
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Exhibit 10.5
Employment Agreement for
Michael A. Mussallem
Edwards Lifesciences Corporation
March 2000
Contents
Article 2. Term of Employment Agreement 3
Article 3. Employment Duties and Compensation 3
Article 4. Employment Termination 5
Article 5. Restrictive Covenants 8
Article 6. Indemnification 9
Article 7. Assignment 10
Article 8. Dispute Resolution and Notice 10
Article 9. Miscellaneous 11
Employment Agreement for Michael A. Mussallem Edwards Lifesciences Corporation
This EMPLOYMENT AGREEMENT (the "Agreement") is made, entered into, and is effective as of this ____ day of _________ 2000 (the "Effective Date"), by and between Edwards Lifesciences Corporation, a Delaware corporation (the "Company"), and Michael A. Mussallem (the "Executive").
WHEREAS, the Executive possesses considerable experience and knowledge of the business and affairs of the Company concerning its policies, methods, personnel, and operations; and
WHEREAS, the Executive has demonstrated unique qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the employment of the Executive as Chief Executive Officer ("CEO"), and the Executive is desirous of having such assurances.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
Article 1. Definitions
As used in this Agreement, unless the context expressly indicates otherwise,
the following terms have the following meanings:
1.1 "Base Salary" means, at any time, the then-regular annual rate of pay which the Executive is receiving as annual salary, excluding amounts: (i) designated by the Company as payment toward reimbursement of expenses or (ii) received under short-term or long-term incentive or other bonus plans, regardless of whether or not the amounts are deferred.
1.2 "Board" means the Board of Directors of the Company.
1.3 "Cause" shall be determined solely by the Committee in the exercise of good faith and reasonable judgement, and shall mean the occurrence of any one or more of the following:
(i) The Executive's willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Executive's Disability) after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Committee believes that the Executive has not substantially performed his duties, and the Executive has failed to remedy the situation within fifteen (15) business days of such written notice from the Company; or
(ii) The Executive's willfully engaging in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; or
(iii) The Executive's conviction of a felony.
However, no act or failure to act on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
1.4 "Change in Control" has the same meaning as in the Severance Agreement.
1.5 "Committee" means the Compensation Committee of the Board of Directors of the Company, or, if no Compensation Committee exists, then the full Board of Directors of the Company, or a committee of Board members, as appointed by the full Board to administer this Agreement.
1.6 "Disability" shall have the meaning ascribed to such term in the Executive's governing long-term disability plan, or if no such plan exists, at the discretion of the Board.
1.7 "Employment Term" means the original or extended term of employment of this Agreement as provided in Article 2 herein.
1.8 "Retirement" means any voluntary termination of the Executive's employment after age fifty-five (55), provided that the Executive has at least a combined ten (10) years of service with the Company and Baxter International, Inc. The Executive's number of years of service with the Company and Baxter International, Inc. shall be determined by calculating the number of complete twelve-month (12) periods of employment from the Executive's original date of hire with Baxter International, Inc. to the Executive's date of voluntary employment termination.
1.9 "Severance Agreement" means the Chief Executive Officer Change in Control Severance Agreement dated ____________________ between the Company and the Executive, as amended, or any successor agreement thereto.
1.10 "Severance Payments" means the payments designated as such in Section 4.3 herein and that may be provided to the Executive pursuant to such section.
1.11 "Subsidiary" means a corporation, company, or other entity: (i) more than fifty percent (50%) of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are; or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture, or unincorporated association), but more than fifty percent (50%) of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company.
Article 2. Term of Employment Agreement
This Agreement will commence on the Effective Date first written above, and shall continue in effect for three (3) full calendar years. However, at the end of the second year of such three-year period, this Agreement shall be extended automatically for one (1) additional year, unless the Company notifies the Executive in writing within 180 days prior to the occurrence of the automatic extension, that the term of this Agreement will not be extended. Moreover, upon the end of each subsequent year, this Agreement shall also be extended automatically for one (1) additional year, unless the Company otherwise notifies the Executive in writing 180 days prior to the occurrence of such automatic extension. In the case where the Company properly notifies the Executive that the Agreement will no longer be extended, the Agreement will terminate at the end of the term, or extended term, then in progress.
However, in the event a Change in Control occurs during the original or any extended term, this Agreement will remain in effect for twenty-four (24) months beyond the month in which such Change in Control occurred.
Article 3. Employment Duties and Compensation
3.1 Employment Duties. During the Employment Term, the Executive shall serve as CEO of the Company. In his capacity as CEO of the Company, the Executive shall report directly to the Board and shall maintain the level of duties and responsibilities as in effect on the Effective Date, or such higher level of duties and responsibilities as he may be assigned during the Employment Term. In his capacity as CEO, the Executive shall have the same status, privileges, and responsibilities normally inherent in such capacity in corporations of similar size and character to the Company.
In addition, during the Employment Term, the Executive shall be entitled to the benefits listed in Sections 3.2 through 3.8 herein and have such duties as outlined in Section 3.9.
3.2 Base Salary. The Company shall pay the Executive an annual Base Salary of at least five hundred and twenty-five thousand dollars ($525,000) during the Employment Term. The Executive's Base Salary shall be paid in substantially equal installments throughout the year, consistent with the normal payroll practices of the Company. Further, the Base Salary shall be reviewed at least annually following the Effective Date of this Agreement to ascertain whether, in the sole judgment of the Board or the Board's designee, such Base Salary should be changed. If so changed, the Base Salary as stated above shall, likewise, be increased for all purposes of this Agreement.
3.3 Annual Bonus. Subject to Section 3.10, the Company shall provide the Executive with the opportunity to earn an annual cash bonus at a level which is in line with the Company's current compensation philosophies and the opportunities provided to other top executives at the Company, and commensurate with the business opportunities and direction of the Company at the time, as determined by the Board or the Board's designee.
3.4 Long-Term Incentives Including Stock Options. Subject to section 3.10, the Company shall provide the Executive the opportunity to earn a long-term performance incentive award and/or stock options pursuant to the Company's Long- Term Stock Incentive Compensation Program (as amended, or any successor plans thereto) at a level which is in line with the Company's current compensation philosophies and the opportunities provided to other top executives at the Company, and commensurate with the business opportunities and direction of the Company at the time, as determined by the Board or the Board's designee.
3.5 Retirement Benefits. Subject to Section 3.10, the Company shall provide the Executive with participation in all existing tax qualified retirement plans including, but not limited to, the Company's 401(k) Savings and Investment Plan (as amended, or any successor plans thereto), subject to the eligibility and participation requirements of each plan.
In addition, also subject to Section 3.10, the Company shall provide the Executive with participation in all existing nonqualified retirement plans including, but not limited to, the Edwards Lifesciences Nonqualfiied Deferred Compensation Plan (as amended, or any successor plans thereto).
3.6 Employee Benefits. Subject to Section 3.10 and as otherwise provided within the provisions of each of the respective plans, the Company shall provide to the Executive all benefits to which other employees of the Company are entitled to receive, in accordance with the terms and conditions of any policies or plans applicable to such benefits. Such benefits shall include, but not be limited to, group term life insurance, health insurance, short- and long-term disability insurance and vacation.
The Executive shall be entitled to the number of weeks of paid vacation per year provided to other top Company executives and in line with standard Company policy.
The Executive shall likewise participate in any additional benefits as may be established during the Employment Term, by standard written policy of the Company
3.7 Perquisites. Subject to Section 3.10, the Company shall provide to the Executive all perquisites that other executives of the Company generally are entitled to receive, and such other perquisites, which are suitable to the character of the Executive's position with the Company and adequate for the performance of his duties hereunder.
3.8 Expenses. The Company shall pay, or reimburse the Executive, for all ordinary and necessary expenses in a reasonable amount which the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies of which the Executive's participation is in the best interests of the Company. The expenses will be accounted for and reimbursed through the Company's normal expense reporting and approval process.
3.9 Standard of Care. During the Employment Term, the Executive agrees to devote substantially all of his time, attention, and energies to the Company's business and shall not be engaged in any other business activity, whether or not such business activity is pursued for gain, profit, or other pecuniary advantage. However, subject to Article 5 herein, and subject to prior approval by the Board (except where the Executive was serving as a director of another company as of the Effective Date), the Executive may serve as a director of other companies so long as such service is not injurious to the Company. The Executive covenants, warrants, and represents that, during the Employment Term, he shall:
(a) Devote his full time and best efforts to the fulfillment of his employment obligations;
(b) Exercise the highest degree of loyalty and the highest standards of conduct in the performance of his duties; and
(c) Do nothing that harms, in any way, the business or reputation of the Company.
This Section 3.9 shall not be construed as preventing the Executive from investing assets in such form or manner as will not require his services in the daily operations of the affairs of the companies in which such investments are made.
3.10 Right to Change Plans. The Company shall not be obligated by reason of any of the provisions of this Article 3, to institute, maintain, or refrain from changing, amending, or discontinuing any compensation or benefit plan, program, or perquisite (including but not limited to, changes in the amount of target annual bonus or target long-term performance incentives), provided that if any changes are made they will apply to the Executive in substantially the same manner as they apply to other top executives of the Company.
Article 4. Employment Termination
4.1 Termination Due to Retirement, Disability, or Death. In the event the Executive's employment during the Employment Term is terminated by reason of Retirement, Disability, or death, the Executive's benefits shall be determined in accordance with the Company's retirement, survivor's benefits, annual bonus and long-term incentive plans, insurance, and other applicable programs then in effect.
In addition, upon the effective date of such termination, the Company shall pay to the Executive or his beneficiary or estate, as the case may be, his base salary as earned but unpaid through the effective date of termination. Further, the Executive shall receive all other benefits to which the Executive has a vested right to at that time.
The Company shall also pay to the Executive (or the Executive's estate or beneficiaries as the reason may be), within thirty (30) calendar days of the Executive's termination, a lump-sum cash amount equal to the Executive's target annual bonus under the Company's annual bonus plan in effect for the bonus plan year in which the Executive's date of termination occurs, multiplied by a fraction, the numerator of which is the number of full completed months in the bonus plan year through the effective date of termination, and the denominator of which is twelve (12). This payment will be in lieu of any other payment to be made to the Executive under such annual bonus plan for such plan year.
The Company's obligation to pay and provide to the Executive base salary, annual bonus, and long-term incentives (as provided in Sections 3.2, 3.3, and 3.4 herein, respectively) shall immediately thereafter expire and, with the exception of the covenants contained in Article 5 herein (which shall survive such termination), the Company and the Executive thereafter shall have no further obligations under this Agreement.
The provisions of Section 4.3 shall supersede this Section 4.1 in the event that the Company involuntarily terminates the Executive's employment without Cause.
4.2 Voluntary Termination by the Executive Other Than Retirement or Involuntary Termination for Cause. The Executive may terminate this Agreement at any time by giving the Board written notice of intent to terminate, delivered at least ninety (90) calendar days prior to the effective date of such termination. The termination automatically shall become effective upon the expiration of the ninety (90) day notice period.
Nothing in this Agreement shall be construed to prevent the Board from terminating the Executive's employment under this Agreement for "Cause" at any time.
In the event that the Executive voluntarily terminates employment (other than by Retirement) or if he is involuntarily terminated by the Company for Cause, upon the effective date of such a termination, the Company shall pay to the Executive or his beneficiary or estate, as the case may be, his base salary as earned but unpaid and any accrued vacation time through the effective date of termination. The Executive also shall receive all other benefits to which he has a vested right to at that time.
The Company's obligation to pay and provide the Executive base salary, annual bonus, and long-term incentives (as provided in Sections 3.2, 3.3, and 3.4 herein, respectively) shall immediately expire. With the exception of the covenants contained in Article 5 herein (which shall survive such termination), the Company and the Executive thereafter shall have no further obligations under this Agreement.
4.3 Involuntary Termination by the Company Without Cause. The Company may
terminate the Executive's employment, as provided under this Agreement, at any
time, for any reason other than death, Disability, or for Cause, by notifying
the Executive in writing of the Company's intent to terminate, at least thirty
(30) calendar days prior to the effective date of such termination. Subject to
the payment of the Severance Payments provided below, the termination
automatically shall become effective upon the expiration of the thirty (30)
calendar day notice period. Thereafter, this Agreement, along with all
corresponding rights, duties, and covenants, shall automatically expire. A
nonrenewal or nonextension of this Agreement or any term of this Agreement, as
described in Article 2 herein, shall not be deemed an involuntary termination
under this Section 4.3 and, thereby, shall not trigger the payment of the
Severance Payments described below.
Subject to Section 4.4, upon the effective date of an involuntary termination without Cause under this Section 4.3, the Company shall pay to the Executive and provide the Executive with the following "Severance Payments":
(a) A lump-sum cash amount equal to the Executive's unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and all other items earned by and owed to the Executive through and including the effective date of the termination (including, but not limited to, annual bonus or performance-based long-term incentives that have been earned, but not paid). Such payment shall constitute full satisfaction for these amounts owed to the Executive.
(b) A lump-sum cash amount equal to the Executive's target annual bonus under the Company's annual bonus plan in effect for the bonus plan year in which the Executive's date of termination occurs, multiplied by a fraction, the numerator of which is the number of full completed months in the bonus plan year through the effective date of termination, and the denominator of which is twelve (12). This payment will be in lieu of any other payment to be made to the Executive under such annual bonus plan for such plan year.
(c) A cash amount equal to two (2) times the sum of the Executive's Base
Salary and the greater of: (i) the Executive's target annual bonus
under the Company's annual bonus plan in effect for the bonus plan
year in which his employment with the Company terminates; or (ii) the
actual annual bonus earned by the Executive in the bonus plan year
prior to the year of employment termination under the annual bonus
plan in effect for such prior plan year. For the purposes of this
calculation, the Executive's highest Base Salary during the twelve
(12) months prior to his termination of employment shall be used.
(d) All long-term incentive awards shall be subject to the treatment provided under the Company's Long-Term Stock Incentive Compensation Program (as amended, or any successor plans thereto) and/or the applicable award agreements thereunder.
(e) A continuation for a twenty-four (24) month period of the Executive's medical insurance and dental insurance coverage. These benefits shall be provided by the Company to the Executive beginning immediately upon the date of the Executive's termination. Such benefits shall be provided to the Executive at the same coverage level (with all premium costs borne by the Company) as in effect as of the date of the Executive's termination for a period of twenty-four (24) months following the Executive's date of termination.
Notwithstanding the above, these medical and dental insurance benefits
shall be discontinued prior to the end of the stated continuation
period in the event the Executive receives substantially similar
benefits from a subsequent employer, as determined solely by the
Committee in good faith. However, if the benefits received from the
subsequent employer do not cover the preexisting medical conditions of
the Executive or a covered member of the Executive's family, the
continuation period shall continue, but not beyond the twenty-fourth
(24th) month following the Executive's date of termination. For
purposes of enforcing this offset provision, the Executive shall be
deemed to have a duty to keep the Company informed as to the terms and
conditions of any subsequent employment and the corresponding benefits
earned from such employment and shall provide, or cause to provide, to
the Company in writing correct, complete, and timely information
concerning the same.
If triggered, the Severance Payments provided under this Section 4.3 shall be in lieu of all other benefits provided to the Executive under the provisions of this Agreement.
4.4 Coordination with Severance Agreement. In the event that the Executive receives any severance benefits pursuant to the Severance Agreement, he shall not be entitled to receive the Severance Payments provided for in Section 4.3 herein.
Article 5. Restrictive Covenants
5.1 Disclosure of Information. Without the prior written consent of the Company, the Executive shall not, at any time, directly or indirectly, use, attempt to use, disclose, or otherwise make known to any person or entity (other than the Board):
(a) Any confidential or proprietary knowledge or information, including without limitation, lists of customers or suppliers, trade secrets, know-how, inventions, discoveries, processes, and systems, as well as any data and records pertaining thereto, which the Executive may acquire in the course of his employment.
(b) Any confidential or proprietary knowledge or information of a confidential nature (including, but not limited to, all unpublished matters) relating to, without limitation, the business, properties, accounting, books and records, computer systems and programs, trade secrets, or memoranda of the Company or a Subsidiary.
5.2 Employment. Without the prior written consent of the Company, during the Employment Term, and for a period of twenty-four (24) calendar months following the Executive's employment termination for any reason, the Executive shall not, directly or indirectly employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of the Company or any Subsidiary.
5.3 Nondisparagment. Without the prior written consent of the Company, the Executive shall not, at any time, directly or indirectly, make statements or representations, or otherwise communicate, in writing, orally, or otherwise, or take any action that may disparage or be damaging to the Company or any Subsidiary or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive from making truthful statements or disclosures that are required by applicable law, regulation or legal process.
5.4 Acknowledgement of Covenants. The Company and the Executive acknowledge that the Executive's services are of a special, extraordinary, and intellectual character which gives him unique value, and that the business of the Company and its Subsidiaries is highly competitive, and that violation of any of the covenants provided in this Article 5 would cause immediate, immeasurable, and irreparable harm, loss, and damage to the Company and/or a Subsidiary not adequately compensable by a monetary award. The Executive acknowledges that the time and scope of activity restrained by the provisions of this Article 5 are reasonable and do not impose a greater restraint than is necessary to protect the goodwill of the Company's business and/or that of any Subsidiary. The Executive further acknowledges that he and the Company have negotiated and bargained for the terms of this Agreement, and that the Executive has received adequate consideration for entering into this Agreement. In the event of any such breach or threatened breach by the Executive of any one or more of such covenants, the Company shall be entitled to such equitable and injunctive relief as may be available to restrain the Executive from violating the provisions hereof. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available at law or in equity for such breach or threatened breach, including the recovery of damages and the immediate termination of the employment of the Executive hereunder.
5.5 Enforceability. If any court determines that the foregoing covenant, or any part thereof, is unenforceable because of the duration or scope of such provision, or for any other reason, the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced.
Article 6. Indemnification
The Company hereby covenants and agrees to indemnify and hold harmless the Executive fully, completely, and absolutely against and in respect to any and all actions, suits, proceedings, claims, demands, judgments, costs, expenses (including attorneys' fees), losses, and damages resulting from the Executive's good faith performance of his duties and obligations under the terms of this Agreement.
Article 7. Assignment
7.1 Assignment by the Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes for the "Company" under the terms of this Agreement. As used in this Agreement, the term "successor" shall mean any person, firm, corporation, or business entity which at any time, whether by merger, purchase, or otherwise, acquires greater than fifty percent (50%) of the business assets of the Company. Notwithstanding such assignment, the Company shall remain, with such successor, jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall immediately entitle the Executive to the Severance Payments as provided in Section 4.3.
Except as herein provided, this Agreement may not otherwise be assigned by the Company.
7.2 Assignment by Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's beneficiary, devisee, legatee, or other designee or, in the absence of such designee, to the Executive's estate.
The Executive shall not assign any obligations or responsibilities he has under this Agreement.
Article 8. Dispute Resolution and Notice
8.1 Dispute Resolution. The Executive shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this Agreement settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of the Company's principal place of business, in accordance with the rules of the American Arbitration Association then in effect. The Executive's election to arbitrate, as herein provided, and the decision of the arbitrators in that proceeding, shall be binding on the Company and the Executive.
Judgment may be entered on the award of the arbitrator in any court having jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company.
8.2 Payment of Legal Fees. Unless a court shall find the Executive's claim to be arbitrary and capricious, the Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses which are incurred in good faith by the Executive (or the Executive's estate or beneficiaries as the case may be) as a result of the Company's refusal to provide the benefits to which the Executive becomes entitled under this Agreement, or as a result of the Company's (or any third party's) contesting the validity, enforceability, or interpretation of the Agreement, or as a result of any conflict between the parties pertaining to this Agreement.
8.3 Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal offices.
Article 9. Miscellaneous
9.1 Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto and contains the entire understanding of the Company and the Executive with respect to the subject matter hereof.
9.2 Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives.
9.3 Severability. If any provision of this Agreement or the application thereof is held invalid, such invalidity shall not affect other provisions or applications of the Agreement that can be given effect without the invalid provision or application and, to such end, the provisions of this Agreement are declared to be severable.
9.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.
9.5 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.
9.6 Beneficiaries. The Executive may designate one or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Board or the Board's designee. The Executive may make or change such designation at any time.
9.7 Waiver of Clauses. At its discretion, the Company may require the Executive to sign a waiver of all legal claims against the Company or any Subsidiary upon the Executive's employment termination.
9.8 Governing Law. To the extent not preempted by federal law, the provisions of this Agreement shall be construed and enforced in accordance with the laws of the state of Delaware without giving effect to principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the Effective Date.
ATTEST Edwards Lifesciences Corporation
By:______________________________ By:__________________________________
Corporate Secretary Title:_______________________________
Executive:
_____________________________________
Michael A. Mussallem
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Exhibit 10.6
Edwards Lifesciences Corporation
Employee Stock Purchase Plan
For United States Employees
(Effective April 1, 2000)
Edwards Lifesciences Corporation Employee Stock Purchase Plan For United States Employees
(Effective April 1, 2000)
ARTICLE I-PURPOSE
1.01. Purpose
The Edwards Lifesciences Corporation Employee Stock Purchase Plan for United States Employees is intended to provide a method whereby employees of Edwards Lifesciences Corporation and its participating subsidiary corporations (hereinafter referred to, unless the context otherwise requires, as the "Company") will have an opportunity to acquire a proprietary interest in the Company through the purchase of shares of the Common Stock of the Company ("Stock"). It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of Code Section 423.
ARTICLE II-DEFINITIONS
2.01. Base Pay
"Base Pay" shall mean regular straight-time earnings plus commissions and payments in lieu of regular earnings (such as vacation, sick pay and holiday pay). In the case of a part-time hourly employee, such employee's base pay during an Offering shall be determined by multiplying such employee's hourly rate of pay by the number of regularly scheduled hours of work for such employee during such Offering.
2.02. Committee
"Committee" shall mean the individuals appointed by the Company to administer the Plan as described in Article IX.
2.03. Eligible Employee
"Eligible Employee" means any regular employee of the Company who is paid from the United States payroll and is scheduled to work 20 or more hours per week.
2.04. Enrollment Period
"Enrollment Period" shall mean with respect to any Offering, the period designated by the Committee prior to such Offering during which Eligible Employees may authorize payroll deductions through a Subscription. Unless the Committee determines otherwise, the Enrollment Period with respect to any Offering shall end on the twenty-fifth day of the month immediately preceding the Offering Commencement Date or, if such day is not a business day, the immediately preceding business day, and any Subscription received after such date shall be deemed to be an enrollment in the next following Offering. However, the initial Enrollment Period shall end on the twenty-seventh day of the month immediately preceding the initial Offering Commencement Date, and any Subscription received after such date shall be deemed to be an enrollment in the next following Offering.
2.05. Offering Commencement Date
"Offering Commencement Date" shall mean April 3, 2000, and unless determined otherwise by the Committee, the first day of each calendar quarter thereafter.
2.06. Offering
"Offering" shall mean the quarterly offering of the Company's Stock.
2.07. Offering End Date
"Offering End Date" shall mean, with respect to each Offering, the day preceding the second annual anniversary of the Offering Commencement Date for such Offering.
2.08. Participant
"Participant" shall mean an Eligible Employee who has elected to participate in an Offering by entering a Subscription during the Enrollment Period for such Offering.
2.09. Plan
"Plan" shall mean the Edwards Lifesciences Corporation Employee Stock Purchase Plan for United States Employees, as amended from time to time.
2.10. Purchase Date
"Purchase Date" shall mean with respect to any Offering, the last day of each calendar quarter during the period beginning with the Offering Commencement Date for such Offering and ending with the Offering End Date; provided, however, if any such day is not a business day, the Purchase Date shall be the next preceding business date on which shares of Stock are traded.
2.11. Subscription
"Subscription" shall mean an Eligible Employee's authorization for payroll deductions made in the form and manner specified by the Committee (which may include enrollment by submitting forms, by voice response, internet access or other electronic means). Unless withdrawn earlier in accordance with Section 6.02, each Subscription shall be in effect for 24 months. No more than one Subscription may be in effect for an Eligible Employee during any calendar quarter.
2.12. Subsidiary Corporation
"Subsidiary Corporation" shall mean any present or future corporation which
would be a "subsidiary corporation" of the Company as that term is defined in
Section 424 of the Code.
ARTICLE III-ELIGIBILITY AND PARTICIPATION
3.01. Initial Eligibility
Any individual who is an Eligible Employee on an Offering Commencement Date shall be eligible to participate in the Offering commencing on such date, subject to the terms and conditions of the Plan.
3.02. Leave of Absence
For purposes of participation in the Plan, a Participant on a leave of absence shall be deemed to be an employee for a period of up to 90 days or, if longer, during the period the Participant's right to reemployment is guaranteed by statute or contract. If the leave of absence is paid, deductions authorized under any Subscription in effect at the time the leave began will continue. If the leave of absence is unpaid, no deductions or contributions will be permitted during the leave. If such a Participant returns to active status within 90 days or the guaranteed reemployment period, as applicable, payroll deductions under the Subscription in effect at the time the leave began will automatically begin again upon the Participant's return to active status, unless the Subscription Period has expired. If the Participant does not return to active status within 90 days or the guaranteed reemployment period, as applicable, the Participant shall be treated as having terminated employment for all purposes of the Plan. If such individual later returns to active employment as an Eligible Employee, such individual will be treated as a new employee and will be eligible to participate in Offerings commencing after his or her reemployment date by filing a Subscription during the applicable Enrollment Period for such Offering.
3.03. Restrictions on Participation
Notwithstanding any provisions of the Plan to the contrary, no Eligible Employee shall be granted an option to participate in the Plan:
(a) if, immediately after the grant, such employee would own stock, and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company (for purposes of this paragraph, the rules of Section 424(d) of the Code shall apply in determining stock ownership of any employee); or
(b) which permits the employee's rights to purchase stock under all employee stock purchase plans of the Company to accrue at a rate which exceeds $25,000 in fair market value of the stock (determined at the time such option is granted) for each calendar year in which such option is outstanding.
Further, with respect to any Offering, in no event shall an employee be granted an option to purchase in excess of 10,000 shares of stock.
3.04. Commencement of Participation
An Eligible Employee may become a Participant in any Offering by entering a Subscription during the Enrollment Period for such Offering. Payroll deductions for such Offering shall commence on the applicable Offering Commencement Date and shall end on the applicable Offering End Date unless withdrawn by the Participant or sooner terminated in accordance with Article VII. Only one Subscription may be in effect with respect to any Participant at any one time.
3.05. Participation After Rehire
An Eligible Employee's Subscription will automatically terminate on his or her termination of employment with the Company. If the Eligible Employee terminates employment with a Subscription in effect with respect to an Offering and is rehired prior to the Offering End Date for that Offering, the Subscription will not be reinstated and the Eligible Employee will not be allowed to again make payroll deductions under such Offering. The Eligible Employee may elect to participate in Offerings commencing after his or her reemployment date by entering a Subscription during the applicable Enrollment Period for such Offering.
3.06. International Employees/International Transfers
Eligible Employees who transfer to the United States and are placed on a U. S. payroll may not participate in Offerings which had an Offering Commencement Date prior to such transfer, regardless of whether such Eligible Employee was participating in an offering under a stock purchase plan for international employees prior to the transfer. Such Eligible Employee may
participate in Offerings commencing after such transfer, by entering a Subscription during the applicable Enrollment Period for such Offering.
A Participant who transfers outside of the United States and is no longer paid on a U.S. payroll will be treated as a terminated Participant under this Plan. For purposes of the Plan, Puerto Rico is not considered U.S. payroll.
ARTICLE IV-OFFERINGS
4.01. Quarterly Offerings
The Plan will be implemented by Offerings beginning on April 3, 2000 and, unless determined otherwise by the Committee, on the first day of each calendar quarter thereafter. Eligible Employees may not have in effect more than one Subscription at a time.
Participants may subscribe to any Offering by entering a Subscription during the Enrollment Period for such Offering in such manner as the Committee may prescribe (which may include enrollment by submitting forms, by voice response, internet access or other electronic means).
A Subscription that is in effect on an Offering End Date will automatically be deemed to be a Subscription for the Offering that commences immediately following such Offering End Date, provided that the Participant is still an Eligible Employee and has not withdrawn the Subscription. Under the foregoing automatic enrollment provisions, payroll deductions will continue at the level in effect immediately prior to the new Offering Commencement Date, unless changed in advance by the Participant in accordance with Section 5.03.
4.02. Purchase Price
The purchase price per share of Stock under each Offering shall be the lower of:
(a) 85% of the closing price of the Stock on the Offering Commencement Date or the nearest preceding business day on which trading occurred on the New York Stock Exchange; or
(b) 85% of the closing price of the Stock on the Purchase Date or the nearest prior business day on which trading occurred on the New York Stock Exchange. If the Common Stock of the Company is not admitted to trading on any of the aforesaid dates for which closing prices of the stock are to be determined, then reference shall be made to the next preceding date on which Common Stock was so admitted.
Such purchase price may only be paid with accumulated payroll deductions in accordance with Article V. For purposes of the initial Offering, "the closing price" shall be replaced by "the average of the opening price and closing price" in 4.02(a), above.
ARTICLE V-PAYROLL DEDUCTIONS
5.01. Amount of Deduction
An Eligible Employee's Subscription shall authorize payroll deductions at a rate, in whole percentages, of no less than 1% and no more than 12% of Base Pay on each payday that the Subscription is in effect.
5.02. Participant's Account
All payroll deductions made with respect to a Participant shall be credited to his or her recordkeeping account under the Plan. A Participant may not make any separate cash payment into such account. No interest will accrue or be paid on any amount withheld from a Participant's pay under the Plan or credited to the Participant's account. Except as otherwise provided in this Section 5.02, all amounts in a Participant's account will be used to purchase Stock and no cash refunds shall be made from such account. Any amounts remaining in a Participant's account pursuant to the Participant's Subscription election or because of the limitations of Section 3.03 shall be returned to the Participant without interest and will not be used to purchase shares with respect to any other Offering under the Plan.
5.03. Changes in Payroll Deductions
During an Offering period, a Participant may change his or her level of payroll deduction with respect to such Offering within the limits described in Section 5.01 in accordance with procedures established by the Committee (including, without limitation, rules relating to the frequency of such changes); provided, however, if the Participant reduces his or her payroll deductions to zero, it shall be deemed to be a withdrawal of the Subscription and the Participant may not thereafter participate in such Offering but must wait until the next quarterly Offering to resubscribe to the Plan. Any such discontinuance or change in level shall be effective as soon as administratively practicable.
ARTICLE VI-EXERCISE OF OPTION
6.01. Automatic Exercise
A Participant's option for the purchase of Stock with respect to any Offering will be automatically exercised on each Purchase Date for the Offering. The option will be exercised by using the accumulated payroll deductions in the Participant's account as of each such Purchase Date to purchase the number of full and fractional shares of Stock that may be purchased at the purchase price on such date, determined in accordance with Section 4.02.
6.02. Withdrawal From Offering
A Participant may not withdraw the accumulated payroll deductions in his or her account during an Offering period. If the Participant withdraws his or her Subscription with respect to any Offering, the accumulated payroll deductions in the Participant's account at the time the Subscription is withdrawn will be used to purchase shares of Stock at the next Purchase Date for the Offering to which the Subscription related, in accordance with Section 6.01.
6.03 Delivery of Stock
Stock purchases under the Plan will be held in an account in the Participant's name in uncertificated form unless certification is requested by the Participant.
ARTICLE VII-WITHDRAWAL
7.01. Effect on Subsequent Participation
A Participant's election to withdraw from any Offering will not have any effect upon the Participant's eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by the Company.
7.02. Termination of Employment
Subject to the following provisions of this Section 7.02, upon termination of the Participant's employment for any reason, any Subscription then in effect will be deemed to have been withdrawn and any payroll deductions credited to the Participant's account will be used to purchase Stock on the next Purchase Date for the Offering with respect to which such deductions relate. Notwithstanding the foregoing, if the Participant has a Subscription in effect on the Participant's termination of employment, payroll deductions (at the rate in effect on the termination date) shall continue to be made from Base Pay earned prior to termination of employment, if any, that is paid to the Participant after such termination of employment and before the earlier of (i) the three- month anniversary of such termination of employment, or (ii) the Offering End Date of such Offering. Any such payroll deduction shall be used to purchase Stock on the next Purchase Date for the Offering after the deduction is made.
ARTICLE VIII-STOCK
8.01. Maximum Shares
The maximum number of shares which may be issued under the Plan, subject to adjustment upon changes in capitalization of the Company as provided in Section 10.04, shall be ____________ shares. If the total number of shares for which options are exercised on any Purchase Date in accordance with Article IV exceeds the maximum number of shares for the applicable Offering, the Company shall make a pro rata allocation of the shares available for delivery and distribution in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable, and the balance of payroll deductions credited to the account of each Participant under the Plan shall be returned to him as promptly as possible.
8.02. Participant's Interest in Option Stock
The Participant will have no interest in Stock covered by an option under the Plan until such option has been exercised.
8.03. Registration of Stock
Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant.
ARTICLE IX-ADMINISTRATION
9.01. Appointment of Committee
The Board of Directors shall appoint a Committee to administer the Plan. No member of the Committee who is not an Eligible Employee shall be eligible to purchase Stock under the Plan.
9.02. Authority of Committee
Subject to the express provisions of the Plan, the Committee shall have plenary authority in its discretion to interpret and construe any and all provisions of the Plan, to adopt rules and regulations for administering the Plan, and to make all other determinations deemed necessary or advisable for administering the Plan. The Committee's determination on the foregoing matters shall be conclusive. The Committee shall also have the authority to determine whether the employees of divisions or subsidiaries of the Company organized or acquired after the Effective Date shall be eligible for participation in the Plan.
9.03. Rules Governing the Administration of the Committee
The Board of Directors may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed and may fill vacancies, however caused, in the Committee. The Committee may select one of its members as its Chairman and shall hold its meetings at such times and places as it shall deem advisable and may hold telephonic meetings. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. The Committee may correct any defect or omission or reconcile any inconsistency in the Plan, in the manner and to the extent it shall deem desirable. Any decision or determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary and shall make such rules and regulations for the conduct of its business as it shall deem advisable.
9.04. Statements
Each Participant shall receive a statement of his account showing the number of shares of Stock held and the amount of cash credited to such account. Such statements will be provided as soon as administratively feasible following the end of each calendar quarter.
ARTICLE X-MISCELLANEOUS
10.01. Transferability
Neither payroll deductions credited to a Participant's account nor any rights with regard to the exercise of an option or to receive Stock under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the Participant other than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge or other disposition shall be without effect. During a Participant's lifetime, options held by such Participant shall be exercisable only by that Participant.
10.02. Use of Funds
All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose and the Company shall not be obligated to segregate such payroll deductions.
10.03. Adjustment Upon Changes in Capitalization
In the event of a stock split, stock dividend, recapitalization, reclassification or combination of shares, merger, sale of assets or similar event, the Committee shall adjust equitably (a) the number and class of shares or other securities that are reserved for sale under the Plan, (b) the number and class of shares or other securities that are subject to outstanding options, and (c) the
appropriate market value and other price determinations applicable to options. The Committee shall make all determinations under this Section 10.03, and all such determinations shall be conclusive and binding.
10.04. Amendment and Termination
The Board of Directors shall have complete power and authority to terminate or
amend the Plan; provided, however, that the Board of Directors shall not,
without the approval of the stockholders of the Company (i) increase the maximum
number of shares which may be issued under any Offering (except pursuant to
Section 10.03); (ii) amend the requirements as to the class of employees
eligible to purchase stock under the Plan; or (iii) permit the members of the
Committee to purchase stock under the Plan.
Upon termination, any cash remaining in Participant accounts will be applied to the purchase of Stock. For purposes of valuing the Stock, the closing price of the Stock on the New York Stock Exchange on the most recent preceding trading day will determine the purchase price. Upon termination, the Board of Directors shall have the authority to establish administrative procedures regarding the exercise of unpurchased shares or to determine that such exercise shall not be permitted under the Plan.
10.05. Effective Date
This Plan shall be effective as of April 1, 2000.
10.06. No Employment Rights
The Plan does not, directly or indirectly, create any right for the benefit of any employee or class of employees to purchase any shares under the Plan, or create in any employee or class of employees any right with respect to continuation of employment by the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an employee's employment at any time.
10.07. Effect of Plan
The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each employee participating in the Plan, including, without limitation, such employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such employee.
10.08. Governing Law
The law of the State of California will govern all matters relating to this Plan except to the extent it is superseded by the laws of the United States.
IN WITNESS WHEREOF, the company has caused this instrument to be executed on the ___ day of _________________, 2000.
EDWARDS LIFESCIENCES CORPORATION
By:__________________________________
Its:_________________________________
Exhibit 10.7
EDWARDS LIFESCIENCES CORPORATION
DEFERRED COMPENSATION PLAN
(Effective April 1, 2000)
TABLE OF CONTENTS
ARTICLE I PURPOSE, EFFECTIVE DATE, EMPLOYER................................. 1
1.1 Purpose................................................................ 1
1.2 Effective Date......................................................... 1
1.3 Employer............................................................... 1
ARTICLE II DEFINITIONS...................................................... 1
2.1 Accounts............................................................... 1
2.2 Administrative Committee............................................... 1
2.3 Beneficiary............................................................ 2
2.4 Bonus.................................................................. 2
2.5 Bonus Deferral......................................................... 2
2.6 Compensation........................................................... 2
2.7 Compensation Committee................................................. 2
2.8 Deferral Election Form................................................. 2
2.9 Distribution Election Form............................................. 2
2.10 Eligible Employee..................................................... 2
2.11 Excess Matching Contribution.......................................... 3
2.12 Matching Contribution................................................. 3
2.13 Participant........................................................... 3
2.14 Pay Deferral Contribution............................................. 3
2.15 Plan Year............................................................. 3
2.16 Termination of Employment............................................. 3
2.17 Unforeseeable Emergency............................................... 3
2.18 Vesting
ARTICLE III ELIGIBILITY FOR EXCESS MATCHING CONTRIBUTIONS, BONUS
DEFERRALS AND PAY DEFERRALS................................................. 3
3.1 Eligibility for Excess Matching Contribution........................... 3
3.2 Bonus Deferral Elections............................................... 3
3.3 Pay Deferral Elections................................................. 4
ARTICLE IV CREDITING OF ACCOUNTS............................................ 4
4.1 Crediting of Accounts.................................................. 4
4.2 Earnings............................................................... 4
4.3 Account Statements..................................................... 4
4.4 Vesting................................................................ 4
ARTICLE V DISTRIBUTION OF BENEFITS.......................................... 5
5.1 Distribution of Benefits............................................... 5
5.2 Distribution........................................................... 5
5.3 Effect of Payment...................................................... 6
5.4 Taxation of Plan Benefits.............................................. 6
5.5 Withholding and Payroll Taxes.......................................... 6
5.6 Distribution Due to Unforeseeable Emergency............................ 6
ARTICLE VI BENEFICIARY DESIGNATION.......................................... 7
6.1 Beneficiary Designation................................................ 7
6.2 Amendments to Beneficiary Designation.................................. 7
|
6.3 No Beneficiary Designation............................................. 7 ARTICLE VII ADMINISTRATION.................................................. 7 7.1 Administrative Committee............................................... 7 7.2 Administrative Committee Powers........................................ 7 7.3 Uniform Application of Rules........................................... 8 7.4 Claims Procedure....................................................... 8 7.5 Action by Administrative Committee..................................... 9 7.6 Indemnity.............................................................. 9 ARTICLE VIII AMENDMENT AND TERMINATION OF PLAN.............................. 9 8.1 Amendment.............................................................. 9 8.2 Right to Terminate..................................................... 9 8.3 Payment at Termination................................................. 9 ARTICLE IX MISCELLANEOUS.................................................... 10 9.1 Unfunded Plan.......................................................... 10 9.2 Unsecured General Creditor............................................. 10 9.3 Nonassignability....................................................... 10 9.4 Not a Contract of Employment........................................... 10 9.5 Protective Provisions.................................................. 10 9.6 Governing Law.......................................................... 11 9.7 Severability........................................................... 11 9.8 Notice................................................................. 11 9.9 Successors............................................................. 11 9.10 Action by Edwards..................................................... 11 9.11 Effect on Benefit Plans............................................... 11 9.12 Participant Litigation................................................ 11 |
EDWARDS LIFESCIENCES CORPORATION DEFERRED COMPENSATION PLAN
(Effective April 1, 2000)
ARTICLE I
PURPOSE, EFFECTIVE DATE, EMPLOYER
1.1 Purpose. The Edwards Lifesciences Corporation 401(k) Savings and
Investment Plan (the "401(k) Plan") is a defined contribution benefit plan
maintained by Edwards Lifesciences Corporation ("Edwards") to provide eligible
participants with retirement benefits. Limitations imposed by the Internal
Revenue Code of 1986, as amended, ("Code"), prevent some participants from
receiving the full Matching Contribution under the 401(k) Plan, a tax qualified
defined contribution plan. In addition, Edwards desires to maintain an unfunded
plan of deferred compensation for a select group of management and highly
compensated employees. Accordingly, Edwards hereby establishes the Edwards
Lifesciences Corporation Deferred Compensation Plan and the Edwards Lifesciences
Corporation 401(k) Plan Excess Plan and combines them into a single plan to be
known as the Edwards Lifesciences Corporation Deferred Compensation Plan
("Plan"). The purpose of the Plan is to enable certain Participants in the
401(k) Plan to receive the full Matching Contribution under the 401(k) Plan
formula which is limited by the Code, or the Plan, and/or to elect to defer
additional compensation until retirement, except as otherwise set forth on their
election form. Participation in the Plan is limited to a select group of
management or highly compensated employees of Edwards. Capitalized terms not
defined in this Plan are deemed to have the meaning given them in the 401(k)
Plan.
1.2 Effective Date. The Plan is effective as of April 1, 2000.
1.3 Employer. The Plan is adopted for the benefit of a select group of management or highly compensated employees of Edwards or of any subsidiaries or affiliates of Edwards, as set forth below. The Plan may be adopted by any subsidiaries or affiliates of Edwards with the consent of the Administrative Committee. Adopting Employers are listed on Appendix A as attached and updated from time to time.
ARTICLE II
DEFINITIONS
2.1 Accounts. Accounts means the sum of the Participant's Excess Matching Contribution Account balance, the Participant's Bonus Deferral Account balance and the Participant's Pay Deferral Account balance.
2.2 Administrative Committee. For purposes of the Plan, Administrative Committee has the same meaning as the Administrative Committee in the 401(k) Plan.
2.3 Beneficiary. A Participant's Beneficiary, as defined in Article VI, is the Beneficiary designated to receive the Participant's Accounts, if any, from the Plan, upon the death of the Participant.
2.4 Bonus. The term Bonus means those bonuses that are included in the definition of Compensation in the 401(k) Plan and also includes any other bonus which is approved by the Administrative Committee and listed on Attachment A to this Plan. Attachment A may be updated from time to time to accurately reflect the approved bonuses for purpose of this definition.
2.5 Bonus Deferral. The Bonus Deferral is the amount of the Participant's Bonus which the Participant elected to defer and contribute to the Plan which, but for such election, would have otherwise been paid to him/her.
2.6 Compensation. For purposes of the Plan, Compensation has the same meaning as Compensation in the 401(k) Plan without regard to Section 401(a)(17) of the Code, except that the Bonuses deferred under the Plan are included in Compensation in the Plan Year in which such amounts would be paid if they were not deferred and not in the Plan Year in which such amounts are actually paid.
2.7 Compensation Committee. The Compensation Committee of the Board of Directors of Edwards.
2.8 Deferral Election Form. The form which a Participant must complete and return to the Administrative Committee, in accordance with the rules and procedures as may be established by the Administrative Committee, in order to elect to defer a portion of his or her Bonus into the Plan and to designate his Pay Deferral Election.
2.9 Distribution Election Form. The form which a Participant must complete and return to the Administrative Committee, in accordance with the rules and procedures as may be established by the Administrative Committee. This form is to be used by Participants who are not eligible to defer a portion of their Bonus or make a Pay Deferral Contribution to the Plan.
2.10 Eligible Employee. An Eligible Employee is anyone who:
(a) is a participant in the Edwards Long Term Incentive Plan for the Plan Year to which deferrals relate who has contributed the maximum annual contribution limit under Sections 401(k) and 402(g) of the Code to the 401(k) Plan; or
(b) is a participant in the 401(k) Plan whose Matching Contributions to the 401(k) Plan for the Plan Year are limited because of the application of the Code, provided he or she has met the eligibility rules set forth in Section 3.1 below.
2.11 Excess Matching Contribution. The Excess Matching Contribution is
the difference between the Matching Contributions allocated to a Participant's
401(k) Plan Account during the Plan Year and the amount that would have been
allocated if the limitations of Sections 415, 401(k), 402(g) and 401(m) of the
Code, as well as the limitations of Section 401(a)(17) of the Code, were
disregarded.
2.12 Matching Contribution. The term Matching Contribution has the same meaning in the Plan as it does in the 401(k) Plan.
2.13 Participant. A Participant is any Eligible Employee who has an Account balance in the Plan.
2.14 Pay Deferral Contribution. The term Pay Deferral Contribution has the same meaning as Pay Deferral Contribution in the 401(k) Plan. The Pay Deferral Contribution is the amount of the Participant's Compensation which the Participant elected to defer into the Plan which, but for such election, would have otherwise been paid to him/her.
2.15 Plan Year. The Plan Year is the calendar year.
2.16 Termination of Employment. For purposes of the Plan, Termination of Employment has the same meaning as Termination of Employment in the 401(k) Plan.
2.17 Unforeseeable Emergency. A severe financial hardship resulting from a sudden or unexpected illness or accident of the Participant or one of his or her dependents, loss of the Participant's property due to casualty or similar extraordinary and unforeseeable circumstances arising as a result of one or more recent events beyond the control of the Participant, as determined by the Administrative Committee.
2.18 Vesting. For purposes of the Plan, Vesting has the same meaning as Vesting in the 401(k) Plan.
ARTICLE III
ELIGIBILITY FOR EXCESS MATCHING CONTRIBUTIONS, BONUS DEFERRALS
AND PAY DEFERRALS
3.1 Eligibility for Excess Matching Contribution. An Eligible Employee is a Participant in the Plan and eligible to receive a contribution to his or her Excess Matching Contribution Account in the Plan for a Plan Year if such Participant's allocation of Matching Contributions in the 401(k) Plan during the Plan Year is less than five percent (5%) of Compensation because of the application of the Code.
3.2 Bonus Deferral Elections. An Eligible Employee is a Participant in the Plan if he or she defers the maximum amount of Compensation allowed under the Code to the 401(k) Plan for the Plan Year and he or she elects to defer all or a portion of his or her Bonus through the Plan until his or her Termination of Employment, or such other time as specified on his or her
Deferral Election Form, by completing a Deferral Election Form in accordance with applicable rules and procedures established by the Administrative Committee. A Participant may elect to defer up to 100% of his or her Bonus, in whole percentages. Beginning January 1 of the year to which the Deferral Election Form applies, the Deferral Election Form is irrevocable, except as provided in Section 5.6. The Deferral Election Form must be filed with the Administrative Committee in accordance with the rules established by the Administrative Committee before January 1 of the Plan Year to which the Deferral Election Form applies. For purposes of Bonus Deferral Elections, eligible employees are those employees who are participants in the Long Term Incentive Plan for the Plan Year to which deferrals relate.
3.3 Pay Deferral Elections. An Eligible Employee is a Participant in the Plan if he or she elects to defer a portion of his or her Compensation in excess of the annual contribution limit under Sections 401(k) and 402(g) of the Code (as contributed to the 401(k) Plan) as set forth on his or her Deferral Election Form, in accordance with applicable rules and procedures established by the Administrative Committee. A Participant may elect to defer up to a total of 15 % of his or her Compensation to the 401(k) Plan and the Plan; however, such election must be the same election as the Participant made for the 401(k) Plan for such Plan Year, and the Participant may not change his/her 401(k) Plan election for the Plan Year. For purposes of Pay Deferral Elections, eligible employees are those employees who are participants in the Long Term Incentive Plan for the Plan Year to which deferrals relate.
ARTICLE IV
CREDITING OF ACCOUNTS
4.1 Crediting of Accounts.
A. Excess Matching Contribution Account. An account equal to the Excess Matching Contributions, if any, of each Participant plus Earnings.
B. Bonus Deferral Account. An account equal to the Bonus Deferrals, if any, of each Participant plus Earnings.
C. Pay Deferral Account. An account equal to the Pay Deferral Contributions, if any, of each Participant plus Earnings.
4.2 Earnings. Each Participant's Excess Matching Contribution Account, Bonus Deferral Account, and Pay Deferral Account, if any, will be credited with Earnings at a rate determined by the Administrative Committee from time to time. As of the Effective Date of this Plan, Earnings will be credited at the same rate as the Stable Income Fund in the 401(k) Plan. Earnings will be credited to each Participant's Account weekly.
4.3 Account Statements. Account Statements will be generated effective as of the last day of each calendar quarter and mailed to each Participant as soon as administratively feasible. Account Statements will reflect all Account activity during the reporting quarter, including Account contributions, distributions and earnings credits.
4.4 Vesting. Subject to Sections 9.1 and 9.2, a Participant is always 100% Vested in his or her Accounts in the Plan at all times.
ARTICLE V
DISTRIBUTION OF BENEFITS
5.1 Distribution of Benefits. Subject to Section 5.2, distribution of a Participant's Accounts, if any, will commence in accordance with the Participant's Distribution Election Form or Deferral Election Form as soon as administratively feasible after the Participant's Termination of Employment. Any spousal consent requirements under the 401(k) Plan will not apply to distributions under the Plan.
5.2 Distribution.
A. Deferral Election Form. A Participant's Accounts will be paid in accordance with the form of payment designated in such Participant's Deferral Election Form.
B. Distribution Election Form. A Participant's Accounts will be paid after a Participant's Termination of Employment, in accordance with the form of payment designated in such Participant's Distribution Election Form.
C. Forms of Distribution. The forms of distribution are:
(a) A lump sum payment, or
(b) Annual installments of at least 2 years, but not to exceed 15 years.
Annual installments will commence in the first quarter of the Plan Year as specified in the Participant's Deferral Election Form or Distribution Election Form. Subsequent installments will be paid annually in the first quarter of subsequent Plan Years. Lump sum payments will be made in the first quarter of the Plan Year as specified in the Participant's Deferral Election Form. Lump sum payments pursuant to a Distribution Election Form will be made in the first quarter of the Plan Year following the Plan Year in which the Participant incurs a Termination of Employment or any subsequent Plan Year as indicated on the Distribution Election Form.
If a Participant does not elect a form of distribution by the time the Deferral Election Form or the Distribution Election Form is required to be completed, the Participant's election will default to a lump sum payment in the first quarter of the Plan Year following the Plan Year in which the Participant incurs a Termination of Employment.
Notwithstanding the above, a Participant whose Accounts under the Plan total less than $50,000 as of the last day of the Plan Year in which he or she incurs a Termination of Employment will receive lump sum payment of his or her Accounts in the first quarter of
the Plan Year following the Plan Year in which the Participant incurs a Termination of Employment.
The Administrative Committee has the right to postpone the payment of any Accounts for up to one year from the date on which the credits would otherwise be paid.
5.3 Effect of Payment. Payment to the person or trust reasonably and in good faith determined by the Administrative Committee to be the Participant's Beneficiary will completely discharge any obligations Edwards or any other Employer may have under the Plan. If a Plan benefit is payable to a minor or a person declared to be incompetent or to a person the Administrative Committee in good faith believes to be incompetent or incapable of handling the disposition of property, the Administrative Committee may direct payment of such Plan benefit to the guardian, legal representative or person having the care and custody of such minor and such decision by the Administrative Committee is binding on all parties. The Administrative Committee may initiate whatever action it deems appropriate to ensure that benefits are properly paid to an appropriate guardian.
The Administrative Committee may require proof of incompetence, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the Plan benefit. Such distribution will completely discharge the Administrative Committee and the Employer from all liability with respect to such benefit.
5.4 Taxation of Plan Benefits. It is intended that each Participant will be taxed on amounts credited to him or her under the Plan at the time such amounts are received, and the provisions of the Plan will be interpreted consistent with that intention.
5.5 Withholding and Payroll Taxes. Edwards will withhold from payments made hereunder any taxes required to be withheld for the payment of taxes to the Federal, or any state or local government.
5.6 Distribution Due to Unforeseeable Emergency. Upon written request of a Participant and the showing of Unforeseeable Emergency, the Administrative Committee may authorize distribution of all or a portion of the Participant's Accounts, and or the acceleration of any installment payments being made from the Plan, but only to the extent reasonably necessary to relieve the Unforeseeable Emergency. In any event, payment may not be made to the extent such Unforeseeable Emergency is or may be satisfied through reimbursement by insurance or otherwise, including, but not limited to, liquidation of the Participant's assets, to the extent that such liquidation would not in and of itself cause severe financial hardship. In addition, such Participant is precluded from enrolling in the Plan for the entire Plan Year beginning January 1 after the request is approved.
ARTICLE VI
BENEFICIARY DESIGNATION
6.1 Beneficiary Designation. Each Participant has the right to designate one or more persons or trusts as the Participant's Beneficiary, primary as well as secondary, to whom benefits under this Plan will be paid in the event of the Participant's death prior to complete distribution to the Participant of the benefits due under the Plan. Each Beneficiary designation will be in a written form prescribed by the Administrative Committee and will be effective only when filed with the Administrative Committee during the Participant's lifetime.
6.2 Amendments to Beneficiary Designation. Any Beneficiary designation may be changed by a Participant without the consent of any Beneficiary by the filing of a new Beneficiary designation with the Administrative Committee. Filing a Beneficiary designation as to any benefits available under the Plan revokes all prior Beneficiary designations effective as of the date such Beneficiary designation is received by the Administrative Committee. If a Participant's Accounts are community property, any Beneficiary designation will be valid or effective only as permitted under applicable law.
6.3 No Beneficiary Designation. In the absence of an effective Beneficiary designation, or if all Beneficiaries predecease the Participant, the Participant's estate will be the Beneficiary. If a Beneficiary dies after the Participant and before payment of benefits under this Plan has been completed, and no secondary Beneficiary has been designated to receive such Beneficiary's share, the remaining benefits will be payable to the Beneficiary's estate.
ARTICLE VII
ADMINISTRATION
7.1 Administrative Committee. The Plan is administered by the
Administrative Committee, which is the Plan Administrator for purposes of
Section 3(16)(A) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Edwards has appointed the members of the Administrative
Committee to administer the Plan. Members of the Administrative Committee may be
Participants in the Plan.
7.2 Administrative Committee Powers. The Administrative Committee has such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers, rights and duties:
(a) Interpretation of Plan. The Administrative Committee has the power, right and duty to construe, interpret and enforce the Plan provisions and to determine all questions arising under the Plan including, but not by way of limitation, questions of Plan participation, eligibility for Plan benefits and the rights of employees, Participants, Beneficiaries and other persons to benefits under the Plan and to determine the amount, manner and time of payment of any benefits hereunder;
(b) Plan Procedures. The Administrative Committee has the power, right and duty to adopt procedures, rules, regulations and forms to be followed by employees, Participants, Beneficiaries and other persons or to be otherwise utilized in the efficient administration of the Plan which may alter any procedural provision of the Plan without the necessity of an amendment;
(c) Benefit Determinations. The Administrative Committee has the power, right and duty to make determinations as to the rights of employees, Participants, Beneficiaries and other persons to benefits under the Plan and to afford any Participant or Beneficiary dissatisfied with such determination with rights pursuant to a claims procedure adopted by the Committee; and
(d) Allocation of Duties. The Administrative Committee is empowered to employ agents (who may also be employees of Edwards) and to delegate to them any of the administrative duties imposed upon the Administrative Committee or Edwards.
7.3 Uniform Application of Rules. The Administrative Committee will apply
all rules, regulations, procedures and decisions uniformly and consistently to
all Participants similarly situated. Any ruling, regulation, procedure or
decision of the Administrative Committee will be conclusive and binding upon all
persons affected by it. There will be no appeal from any ruling by the
Administrative Committee which is within its authority, except as provided in
Section 7.4 below. When making a determination or a calculation, the
Administrative Committee will be entitled to rely on information supplied by any
Employer, accountants and other professionals including, but not by way of
limitation, legal counsel for Edwards or any Employer.
7.4 Claims Procedure. If a claim for benefits by a Participant or his or her beneficiary or beneficiaries (the "applicant") is denied, the Administrative Committee will furnish the applicant within 90 days after receipt of such claim (or within 180 days after receipt if the Administrative Committee notifies the applicant prior to the end of the 90 day period that special circumstances require an extension of time), a written notice which specifies the reason for the denial, refers to the pertinent provisions of the Plan on which the denial is based, describes any additional material or information necessary for properly completing the claim and explains why such material or information is necessary, and explains the claim review procedures of this Section 7.4. If, within 60 days after receipt of such notice, the applicant so requests in writing, the Administrative Committee will review its earlier decision. The Administrative Committee's decision on review will be in writing, and will include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and will include specific references to the pertinent provisions of the Plan on which the decision is based. It will be delivered to the claimant within 60 days after the request for review is received, unless extraordinary circumstances require a longer period, but in no event more than 120 days after the request for review is received.
7.5 Action by Administrative Committee. Action by the Administrative Committee will be subject to the following special rules:
(a) Meetings and Documents. The Administrative Committee may act by meeting or by document signed without meeting and documents may be signed through the use of a single document or concurrent documents.
(b) Action by Majority. The Administrative Committee will act by a majority decision which action will be as effective as if such action had been taken by all Administrative Committee members, provided that by majority action one or more Administrative Committee members or other persons may be authorized to act with respect to particular matters on behalf of all Administrative Committee members.
(c) Resolving Deadlocks. If there is an equal division among the Administrative Committee members with respect to any question a disinterested party may be selected by a majority vote to decide the matter. Any decision by such disinterested party will be binding.
7.6 Indemnity. To the extent permitted by applicable law and to the extent that they are not indemnified or saved harmless under any liability insurance contracts, any present or former Administrative Committee members, officers, or directors of Edwards, the Employers or their subsidiaries or affiliates, if any, will be indemnified and saved harmless by the Employers from and against any and all liabilities or allegations of liability to which they may be subjected by reason of any act done or omitted to be done in good faith in the administration of the Plan, including all expenses reasonably incurred in their defense in the event that Edwards fails to provide such defense after having been requested in writing to do so.
ARTICLE VIII
AMENDMENT AND TERMINATION OF PLAN
8.1 Amendment. The Compensation Committee may amend the Plan at any time, except that no amendment will decrease or restrict the Accounts of Participants and Beneficiaries at the time of the amendment. Notwithstanding the foregoing, the Compensation Committee may delegate certain authority to amend the Plan to the Administrative Committee.
8.2 Right to Terminate. The Compensation Committee may at any time terminate the Plan. Any Employer may terminate its participation in the Plan by notice to Edwards.
8.3 Payment at Termination. If the Plan is terminated payment of each affected Participant's Accounts to the Participant or Beneficiary for whom they are held will commence within 60 days of such termination in the form determined under Article 5.
ARTICLE IX
MISCELLANEOUS
9.1 Unfunded Plan. This Plan is intended to be an unfunded retirement plan maintained primarily to provide retirement benefits for a select group of management or highly compensated employees. All credited amounts are unfunded, general obligations of the appropriate Employer. This Plan is not intended to create an investment contract, but to provide retirement benefits to eligible employees who participate in the Plan. Eligible employees are members of a select group of management or are highly compensated employees, who, by virtue of their position with an Employer, are uniquely informed as to such Employer's operations and have the ability to affect materially Employer's profitability and operations.
9.2 Unsecured General Creditor. In the event of an Employer's insolvency, Participants and their Beneficiaries, heirs, successors and assigns will have no legal or equitable rights, interest or claims in any property or assets of such Employer, nor will they be Beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by such Employer (the "Policies") greater than those of any other unsecured general creditors. In that event, any and all of the Employer's assets and Policies will be, and remain, the general, unpledged, unrestricted assets of Employer. Employer's obligation under the Plan will be merely that of an unfunded and unsecured promise of Employer to pay money in the future.
9.3 Nonassignability. Neither a Participant nor any other person will have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be nonassignable and nontransferable. No part of the amounts payable will, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. Nothing contained herein will preclude an Employer from offsetting any amount owed to it by a Participant against payments to such Participant or his or her Beneficiary.
9.4 Not a Contract of Employment. The terms and conditions of this Plan will not be deemed to constitute a contract of employment between a Participant and such Participant's Employer, and neither the Participant nor the Participant's Beneficiary will have any rights against such Participant's Employer except as may otherwise be specifically provided herein. Moreover, nothing in this Plan is deemed to give a Participant the right to be retained in the service of his or her Employer or to interfere with the right of such Employer to discipline or discharge him or her at any time.
9.5 Protective Provisions. A Participant will cooperate with Edwards by furnishing any and all information requested by Edwards, in order to facilitate the payment of benefits hereunder.
9.6 Governing Law. The provisions of this Plan will be construed and interpreted according to the laws of the State of California, to the extent not preempted by ERISA.
9.7 Severability. In the event any provision of the Plan is held invalid or illegal for any reason, any illegality or invalidity will not affect the remaining parts of the Plan, but the Plan will be construed and enforced as if the illegal or invalid provision had never been inserted, and Edwards will have the privilege and opportunity to correct and remedy such questions of illegality or invalidity by amendment as provided in the Plan, including, but not by way of limitation, the opportunity to construe and enforce the Plan as if such illegal and invalid provision had never been inserted herein.
9.8 Notice. Any notice or filing required or permitted to be given to Edwards or the Administrative Committee under the Plan will be sufficient if in writing and hand delivered, or sent by registered or certified mail to any member of the Administrative Committee, or to Edwards's Chief Financial Officer and, if mailed, will be addressed to the principal executive offices of Edwards. Notice to a Participant or Beneficiary may be hand delivered or mailed to the Participant or Beneficiary at his or her most recent address as listed in the employment records of Edwards. Notices will be deemed given as of the date of delivery or mailing or, if delivery is made by certified or registered mail, as of the date shown on the receipt for registration or certification. Any person entitled to notice hereunder may waive such notice.
9.9 Successors. The provisions of this Plan will bind and inure to the benefit of Edwards, each Employer, the Participants and Beneficiaries, and their respective successors, heirs and assigns. The term successors as used herein will include any corporate or other business entity which, whether by merger, consolidation, purchase or otherwise acquires all or substantially all of the business and assets of Edwards, and successors of any such corporation or other business entity.
9.10 Action by Edwards. Except as otherwise provided herein, any action required of or permitted by Edwards under the Plan will be by resolution of the Compensation Committee or any person or persons authorized by resolution of the Compensation Committee.
9.11 Effect on Benefit Plans. Amounts paid under this Plan, will not by operation of this Plan be considered to be compensation for the purposes of any benefit plan maintained by any Employer. The treatment of such amounts under other employee benefit plans will be determined pursuant to the provisions of such plans.
9.12 Participant Litigation. In any action or proceeding regarding the Plan, employees or former employees of Edwards or an Employer, Participants, Beneficiaries or any other persons having or claiming to have an interest in this Plan will not be necessary parties and will not be entitled to any notice or process. Any final judgment which is not appealed or appealable and may be entered in any such action or proceeding will be binding and conclusive on the parties hereto and all persons having or claiming to have any interest in this Plan. To the extent permitted by law, if a legal action is begun against Edwards, an Employer, the Administrative Committee, or any member of the Administrative Committee by or on behalf of any person and such action results adversely to such person or if a legal action arises because of conflicting
claims to a Participant's or other person's benefits, the costs to such person of defending the action will be charged to the amounts, if any, which were involved in the action or were payable to the Participant or other person concerned. To the extent permitted by applicable law, acceptance of participation in this Plan will constitute a release of Edwards, each Employer, the Administrative Committee and each member thereof, and their respective agents from any and all liability and obligation not involving willful misconduct or gross neglect.
Edwards Lifesciences Corporation has caused this instrument to be executed by its authorized officer, as of the _____ day of ________________, 2000.
EDWARDS LIFESCIENCES
CORPORATION
By:__________________________________
Its:_________________________________
Exhibit 10.8
Chief Executive Officer
Change-in-Control Severance Agreement
Edwards Lifesciences Corporation
March 2000
Contents
Article 2. Severance Benefits 5
Article 3. Form and Timing of Severance Benefits 8
Article 4. Excise Tax 8
Article 5. The Company's Payment Obligation 8
Article 6. Term of Agreement 9
Article 7. Legal Remedies 9
Article 8. Successors 10
Article 9. Miscellaneous 10
Chief Executive Officer Change-in-Control Severance
Agreement
Edwards Lifesciences Corporation
THIS CHIEF EXECUTIVE OFFICER CHANGE-IN-CONTROL SEVERANCE AGREEMENT is made, entered into, as is effective this _______________day of ____________, 2000 (hereinafter referred to as the "Effective Date"), by and between Edwards Lifesciences Corporation (the "Company"), a Delaware corporation, and Michael A. Mussallem (the "Executive").
WHEREAS, the Executive is currently employed by the Company as its Chief Executive Officer; and
WHEREAS, the Executive possesses considerable experience and knowledge of the business and affairs of the Company concerning its policies, methods, personnel, and operations; and
WHEREAS, the Company is desirous of assuring insofar as possible, that it will continue to have the benefit of the Executive's services; and the Executive is desirous of having such assurances; and
WHEREAS, the Company recognizes that circumstances may arise in which a Change in Control of the Company occurs, through acquisition or otherwise, thereby causing uncertainty of employment without regard to the Executive's competence or past contributions. Such uncertainty may result in the loss of the valuable services of the Executive to the detriment of the Company and its shareholders; and
WHEREAS, both the Company and the Executive are desirous that any proposal for a Change in Control will be considered by the Executive objectively and with reference only to the business interests of the Company and its shareholders; and
WHEREAS, the Executive will be in a better position to consider the Company's best interests if the Executive is afforded reasonable security, as provided in this Agreement, against altered conditions of employment which could result from any such Change in Control.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
Article 1. Definitions
Wherever used in this Agreement, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
1.1 "Agreement" means this Chief Executive Officer Change-in-Control Severance Agreement.
1.2 "Base Salary" means, at any time, the then-regular annual rate of pay which the Executive is receiving as annual salary, excluding amounts: (i) received under short- or long-term incentive or other bonus plans, regardless of whether or not the amounts are deferred or (ii) designated by the Company as payment toward reimbursement of expenses.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Cause" shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:
(i) The Executive's willful and continued failure to substantially
perform his duties with the Company (other than any such failure
resulting from the Executive's Disability) after a written demand
for substantial performance is delivered to the Executive that
specifically identifies the manner in which the Committee believes
that the Executive has not substantially performed his duties, and
the Executive has failed to remedy the situation within fifteen
(15) business days of such written notice from the Company; or
(ii) The Executive's willfully engaging in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; or
(iii) The Executive's conviction of a felony.
However, no act or failure to act on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
1.5 "Change in Control" of the Company shall mean the occurrence of any one of the following events:
(a) Any "Person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (as amended) (other than the Company, any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and any trustee or other fiduciary holding securities under an employee benefit plan of the Company or such proportionately owned corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; or
(b) During any period of not more than twenty-four (24) months, individuals who at the beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 1.5(a), 1.5(c), or 1.5(d) of this Section 1.5) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or
(c) The consummation of a merger or consolidation of the Company with any other entity, other than: (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or
(d) The Company's stockholders approve a plan of complete liquidation or dissolution of the Company, or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect).
1.6 "Code" means the Internal Revenue Code of 1986, as amended.
1.7 "Committee" means the Compensation Committee of the Board of Directors of the Company, or, if no Compensation Committee exists, then the full Board of Directors of the Company, or a committee of Board members, as appointed by the full Board to administer this Agreement.
1.8 "Company" means Edwards Lifesciences Corporation, a Delaware corporation (including any and all subsidiaries), or any successor thereto as provided in Article 8 herein.
1.9 "Disability" shall have the meaning ascribed to such term in the Executive's governing long-term disability plan, or if no such plan exists, at the discretion of the Board.
1.10 "Effective Date" means the date this Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving this Agreement, and as specified in the opening sentence of this Agreement.
1.11 "Effective Date of Termination" means the date on which a Qualifying Termination occurs, as provided in Section 2.2 herein, which triggers the payment of Severance Benefits hereunder.
1.12 "Good Reason" means, without the Executive's express written consent, the occurrence after a Change in Control of the Company of any one or more of the following:
(i) The assignment of the Executive to duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements) as an executive and/or officer of the Company, or a material reduction or alteration in the nature or status of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) calendar days prior to the Change in Control, other than an insubstantial and inadvertent act that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(ii) The Company's requiring the Executive to be based at a location in excess of fifty (50) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on the Company's business to an extent substantially consistent with the Executive's then present business travel obligations;
(iii) A reduction by the Company of the Executive's Base Salary in effect on the Effective Date hereof, or as the same shall be increased from time to time;
(iv) The failure of the Company to continue in effect any of the Company's short- and long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Executive participates unless such failure to continue the plan, policy, practice, or arrangement pertains to all plan participants generally; or the failure by the Company to continue the Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control of the Company;
(v) The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform the Company's obligations under this Agreement, as contemplated in Article 8 herein; and
(vi) The Company, or any successor company, commits a material breach of any of the material provisions of this Agreement.
The Executive's right to terminate employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein.
1.13 "Qualifying Termination" means any of the events described in Section 2.2 herein, the occurrence of which triggers the payment of Severance Benefits hereunder.
1.14 "Severance Benefits" means the payment of severance compensation as provided in Section 2.3 herein.
Article 2. Severance Benefits
2.1 Right to Severance Benefits. The Executive shall be entitled to receive from the Company Severance Benefits as described in Section 2.3 herein, if there has been a Change in Control of the Company and if, within twenty-four (24) calendar months thereafter, the Executive's employment with the Company shall end for any reason specified in Section 2.2 herein as being a Qualifying Termination.
The Executive shall not be entitled to receive Severance Benefits if he is terminated for Cause, or if his employment with the Company ends due to death, Disability, voluntary normal retirement (as defined under the then established rules of the Company's tax-qualified retirement plan), or due to a voluntary termination of employment for reasons other than those specified in Sections 2.2(b) and 2.2(c) herein.
2.2 Qualifying Termination. The occurrence of any one or more of the following events within twenty-four (24) calendar months after a Change in Control of the Company shall trigger the payment of Severance Benefits to the Executive under this Agreement:
(a) The Company's involuntary termination of the Executive's employment without Cause;
(b) The Executive's voluntary employment termination for Good Reason; or
(c) The Executive's voluntary employment termination during the thirty
(30) calendar day period immediately following the one (1) year
anniversary of a Change in Control Company.
In addition, if the Executive's employment is involuntarily terminated without Cause by the Company within six (6) months prior to a Change in Control, such termination shall also be considered a Qualifying Termination occurring during the twenty-four (24) month period following a Change in Control. For purposes of this Agreement, a Qualifying Termination shall not include a termination of employment by reason of death, Disability, or voluntary normal retirement (as such term is defined under the then established rules of the Company's tax-qualified retirement plan), the Executive's voluntary termination for reasons other than those specified in Sections 2.2(b) and 2.2(c) herein, or the Company's involuntary termination for Cause.
2.3 Description of Severance Benefits. In the event that the Executive becomes entitled to receive Severance Benefits, as provided in Sections 2.1 and 2.2 herein, the Company shall pay to the Executive and provide him with total Severance Benefits equal to all of the following:
(a) A lump-sum amount equal to the Executive's unpaid Base Salary, accrued vacation pay, unreimbursed business expenses, and all other items earned by and owed to the Executive through and including the Effective Date of Termination.
(b) A lump-sum amount equal to the Executive's annual target bonus amount, established under the annual bonus plan in which the Executive is then participating, for the bonus plan year in which the Executive's Effective Date of Termination occurs, multiplied by a fraction the numerator of which is the number of full completed months in the bonus plan year through the Effective Date of Termination, and the denominator of which is twelve (12). This payment will be in lieu of any other payment to be made to the Executive under the annual bonus plan in which the Executive is then participating for that plan year.
(c) A lump-sum amount equal to three (3) multiplied by the higher of the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination, or the Executive's highest annual rate of Base Salary in effect during the twelve (12) months preceding the date of the Change in Control.
(d) A lump-sum amount equal to three (3) multiplied by the higher of the Executive's annual target bonus established under the annual bonus plan in which the Executive is then participating for the bonus plan year in which the Executive's Effective Date of Termination occurs, or the actual annual bonus payment made to the Executive under the annual bonus plan in which the Executive participated in the year preceding the year in which the Effective Date of Termination occurs.
(e) All long-term incentive awards shall be subject to the treatment provided under the Company's Long-Term Stock Incentive Compensation Program (as amended, or any successor plans thereto) and/or the applicable award agreements thereunder.
(f) A continuation for a thirty-six (36) month of the Executive's
medical insurance and dental insurance coverage. These benefits
shall be provided by the Company to the Executive beginning
immediately upon the Effective Date of Termination. Such benefits
shall be provided to the Executive at the same coverage level (with
all premium costs borne by the Company) as in effect as of the
Executive's Effective Date of Termination for a period of thirty-six
(36) following the Executive's Effective Date of Termination.
Notwithstanding the above, these medical and dental insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Committee in good faith. However, if the benefits received from the subsequent employer do not cover the preexisting medical conditions of the Executive or a covered member of the Executive's family, the continuation period shall continue, but not beyond the thirty-sixth (36th) following the Executive's Effective Date of Termination. For purposes of enforcing this offset provision, the Executive shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.
(g) For a period of up to thirty-six (36) months following a Change in Control, the Executive shall be entitled, at the expense of the Company, to receive standard outplacement services from a nationally recognized outplacement firm of the Executive's selection. However, the Company's total obligation shall not exceed seventy-five thousand dollars ($75,000.00).
2.4 Termination due to Disability. Following a Change in Control, if the Executive's employment is terminated with the Company due to Disability, the Executive's benefits shall be determined in accordance with the Company's retirement, insurance, and other applicable plans and programs then in effect.
2.5 Termination due to Retirement or Death. Following a Change in Control, if the Executive's employment with the Company is terminated by reason of his voluntary normal retirement (as defined under the then established rules of the Company's tax-qualified retirement plan), or death, the Executive's benefits shall be determined in accordance with the Company's retirement, survivor's benefits, insurance, and other applicable programs then in effect.
2.6 Termination for Cause or by the Executive Other Than for Good Reason. Following a Change in Control, if the Executive's employment is terminated either: (i) by the Company for Cause; or (ii) voluntarily by the Executive for reasons other than those specified in Sections 2.2(b) and 2.2(c) herein, the Company shall pay the Executive his full Base Salary at the rate then in effect, accrued vacation, and other items earned by and owed to the Executive through the Effective Date of Termination, plus all other amounts to which the Executive is entitled under any compensation plans of the Company at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement.
2.7 Notice of Termination. Any termination of the Executive's employment by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated.
Article 3. Form and Timing of Severance Benefits
3.1 Form and Timing of Severance Benefits. The Severance Benefits described in Sections 2.3(a), 2.3(b), 2.3(c), and 2.3(d) herein shall be paid in cash to the Executive in a single lump sum as soon as practicable following the Effective Date of Termination, but in no event beyond ten (10) calendar days from such date.
3.2 Withholding of Taxes. The Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as legally shall be required.
Article 4. Excise Tax
4.1 Excise Tax Payment. If any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of the Company (in the aggregate, "Total Payments") would constitute an "excess parachute payment," such that a golden parachute excise tax is due, the Company shall provide to the Executive, in cash, an additional payment in an amount sufficient to cover the full cost of any excise tax and all of the Executive's additional state and federal income, excise, and employment taxes that arise on this additional payment (cumulatively, the "Full Gross-Up Payment"), such that the Executive is in the same after-tax position as if he had not been subject to the excise tax. For this purpose, the Executive shall be deemed to be in the highest marginal rate of federal and state taxes. This payment shall be made as soon as possible following the date of the Executive's Qualifying Termination, but in no event later than ten (10) calendar days from such date.
For purposes of this Agreement, the term "excess parachute payment" shall have the meaning assigned to such term in Section 280G of the Internal Revenue Code, as amended (the "Code"), and the term "excise tax" shall mean the tax imposed on such excess parachute payment pursuant to Sections 280G and 4999 of the Code.
4.2 Subsequent Recalculation. In the event the Internal Revenue Service subsequently adjusts the excise tax computation herein described, the Company shall reimburse the Executive for the full amount necessary to make the Executive whole on an after-tax basis (less any amounts received by the Executive that the Executive would not have received had the computations initially been computed as subsequently adjusted), including the value of any underpaid excise tax, and any related interest and/or penalties due to the Internal Revenue Service.
Article 5. The Company's Payment Obligation
5.1 Payment Obligations Absolute. The Company's obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever.
The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Section 2.3(f) herein.
5.2 Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.
Article 6. Term of Agreement
This Agreement will commence on the Effective Date first written above, and shall continue in effect irrevocably for three (3) full calendar years. However, at the end of the first year of such three-year (3) period, this Agreement shall be extended automatically for one (1) additional year, unless the Company notifies the Executive in writing, prior to the occurrence of the automatic extension, that the term of this Agreement will not be extended. Moreover, upon the end of each subsequent year, this Agreement shall also be extended automatically for one (1) additional year, unless the Company otherwise notifies the Executive in writing prior to the occurrence of such automatic extension. In the case where the Company properly notifies the Executive that the Agreement will no longer be extended, the Agreement will terminate at the end of the term, or extended term, then in progress.
However, in the event a Change in Control occurs during the original or any extended term, this Agreement will remain in effect for twenty-four (24) months beyond the month in which such Change in Control occurred.
Article 7. Legal Remedies
7.1 Dispute Resolution. The Executive shall have the right and option to elect to have any good faith dispute or controversy arising under or in connection with this Agreement settled by litigation or arbitration. If arbitration is selected, such proceeding shall be conducted by final and binding arbitration before a panel of three (3) arbitrators in accordance with the laws and under the administration of the American Arbitration Association.
7.2 Payment of Legal Fees. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or to incur other costs and expenses in connection with the enforcement of any or all of his rights under this Agreement, the Company shall pay (or the Executive shall be entitled to recover from the Company) the Executive's attorneys' fees, costs, and expenses in connection with a good faith enforcement of his rights including the enforcement of any arbitration award. This shall include, without limitation, court costs and attorneys' fees incurred by the Executive as a result of any good faith claim, action, or proceeding, including any such action against the Company arising out of, or challenging the validity or enforceability of this Agreement or any provision hereof.
Article 8. Successors
The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) of all or a significant portion of the assets of the Company by agreement, in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law and such successor shall be deemed the "Company" for purposes of this Agreement.
Article 9. Miscellaneous
9.1 Employment Status. This Agreement is not, and nothing herein shall be deemed to create, an employment contract between the Executive and the Company or any of its subsidiaries. Subject to the terms of any employment contract between the Executive and the Company, the Executive acknowledges that the rights of the Company remain wholly intact to change or reduce at any time and from time to time his compensation, title, responsibilities, location, and all other aspects of the employment relationship, or to discharge him prior to a Change in Control (subject to such discharge possibly being considered a Qualifying Termination pursuant to Section 2.2).
9.2 Entire Agreement. This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. In addition, the payments provided for under this Agreement in the event of the Executive's termination of employment shall be in lieu of any severance benefits payable under any employment contract between the Executive and the Company or any severance plan, program, or policy of the Company to which he might otherwise be entitled.
9.3 Notices. All notices, requests, demands, and other communications hereunder shall be sufficient if in writing and shall be deemed to have been duly given if delivered by hand or if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal offices.
9.4 Execution in Counterparts. This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed to be original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart.
9.5 Conflicting Agreements. The executive hereby represents and warrants to the Company that his entering into this Agreement, and the obligations and duties undertaken by him hereunder, will not conflict with, constitute a breach of, or otherwise violate the terms of, any other employment or other agreement to which he is a party, except to the extent any such conflict, breach, or violation under any such agreement has been disclosed to the Board in writing in advance of the signing of this Agreement.
9.6 Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect.
Notwithstanding any other provisions of this Agreement to the contrary, the Company shall have no obligation to make any payment to the Executive hereunder to the extent, but only to the extent, that such payment is prohibited by the terms of any final order of a Federal or state court or regulatory agency of competent jurisdiction; provided, however, that such an order shall not affect, impair, or invalidate any provision of this Agreement not expressly subject to such order.
9.7 Modification. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Executive
and by a member of the Board, as applicable, or by the respective parties' legal representatives or successors.
9.8 Applicable Law. To the extent not preempted by the laws of the United States, the laws of Delaware shall be the controlling law in all matters relating to this Agreement without giving effect to principles of conflicts of laws.
IN WITNESS WHEREOF, the parties have executive this Agreement on this _______________ day of ________________, 2000.
ATTEST Edwards Lifesciences Corporation
By:________________________ By:_______________________
Corporate Secretary Title:______________________
__________________________
Michael A. Mussallem
|
Exhibit 10.14
Nonemployee Directors and
Consultants Stock Incentive Program
Edwards Lifesciences Corporation
March 2000
Contents
Article 2. Definitions 1
Article 3. Administration 4
Article 4. Eligibility and Participation 4
Article 5. Shares Subject to the Program 5
Article 6. Stock Options 6
Article 7. Restricted Stock 8
Article 8. Beneficiary Designation 10
Article 9. Deferrals 10
Article 10. Rights of Nonemployee Directors and Consultants 10
Article 11. Change in Control 10
Article 12. Amendment, Modification, and Termination 11
Article 13. Compliance with Applicable Law and Withholding 11
Article 14. Indemnification 13
Article 15. Successors 13
Article 16. Legal Construction 13
Edwards Lifesciences Corporation Nonemployee Directors and Consultants Stock Incentive Program
Article 1. Establishment, Objectives, and Duration
1.1 Establishment of the Program. Edwards Lifesciences Corporation, a Delaware corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the "Edwards Lifesciences Corporation Nonemployee Directors and Consultants Stock Incentive Program" (hereinafter referred to as the "Program"), as set forth in this document. The Program permits the grant of Nonqualified Stock Options and Restricted Stock.
The Program shall become effective as of April 1, 2000 (the "Effective Date") and shall remain in effect as provided in Section 1.3 hereof.
1.2 Objectives of the Program. The objectives of the Program are to optimize the profitability and growth of the Company through long-term incentives which are consistent with the Company's goals and which link the personal interests of Participants to those of the Company's stockholders. The Program is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants who make significant contributions to the Company's success and to allow Participants to share in the success of the Company.
1.3 Duration of the Program. The Program shall commence on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Board to amend or terminate the Program at any time pursuant to Article 12 hereof, until all Shares subject to it shall have been purchased or acquired according to the Program's provisions. However, in no event may an Award be granted under the Program on or after April 1, 2010.
Article 2. Definitions
Whenever used in the Program, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:
2.1 "Annual Retainer" means the fixed annual fee of a Nonemployee Director in effect on the first day of the year in which such Annual Retainer is payable for services to be rendered as a Nonemployee Director of the Company. The Annual Retainer does not include meeting or chairmanship fees.
2.2 "Award" means, individually or collectively, a grant under this Program of Nonqualified Stock Options and Restricted Stock.
2.3 "Award Agreement" means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Program.
2.4 "Board" or "Board of Directors" means the Board of Directors of the Company.
2.5 "Change in Control" of the Company shall mean the occurrence of any one of the following events:
(a) Any "Person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and any trustee or other fiduciary holding securities under an employee benefit plan of the Company or such proportionately owned corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; or
(b) During any period of not more than twenty-four (24) months, individuals who at the beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 2.5(a), 2.5(c), or 2.5(d) of this Section 2.5) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or
(c) The consummation of a merger or consolidation of the Company with any other entity, other than: (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or
(d) The Company's stockholders approve a plan of complete liquidation or dissolution of the Company, or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect.
2.6 "Code" means the Internal Revenue Code of 1986, as amended from time to time.
2.7 "Committee" means the Compensation Committee or any other committee appointed by the Board to administer Awards to Participants, as specified in Article 3 herein.
2.8 "Company" means Edwards Lifesciences Corporation a Delaware corporation, and any successor thereto as provided in Article 15 herein.
2.9 "Consultant" means an individual who is providing or has provided services to the Company but who is not an Employee or a member of the Board, and who does not participate in the Edwards Lifesciences Corporation Long-Term Stock Incentive Compensation Program. For the purposes of this Program, "Employee" means an employee of the Company or of a Subsidiary of the Company and "Subsidiary" is defined as any business, whether or not incorporated, in which the Company has a direct or indirect ownership interest.
2.10 "Disability" shall have the meaning ascribed to such term in the Participant's governing long-term disability plan, or if no such plan exists, at the discretion of the Board.
2.11 "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
2.13 "Fair Market Value" means, at any date, the closing sale price on the principal securities exchange on which the Shares are traded on the last previous day on which a sale was reported.
2.14 "Insider" shall mean an individual who is, on the relevant date, an officer, director or ten percent (10%) beneficial owner of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.
2.15 "Nonemployee Director" means a member of the Company's Board who is not an Employee of the Company.
2.16 "Nonqualified Stock Option" or "Option" means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Code Section 422.
2.17 "Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option.
2.18 "Participant" means a Nonemployee Director or Consultant who has been selected to receive an Award or who has outstanding an Award granted under the Program.
2.19 "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, in its discretion), and the Shares are subject to a substantial risk of forfeiture, as provided in Article 7 herein.
2.20 "Restricted Stock" means an Award granted to a Participant pursuant to Article 7 herein.
2.21 "Shares" means the shares of common stock of the Company.
Article 3. Administration
3.1 General. The Program shall be administered by the Compensation Committee of the Board, or by any other Committee appointed by the Board. Any Committee administering the Program shall be comprised entirely of directors. The members of the Committee shall be appointed from time to time by and shall serve at the sole discretion of the Board. Members of the Committee may participate in the Program. The Committee shall have the authority to delegate administrative duties to officers, Employees, or directors of the Company; provided that the Committee shall not be able to delegate its authority with respect to granting Awards to Insiders.
3.2 Authority of the Committee. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions of the Program, the Committee shall have the authority to: (a) interpret the provisions of the Program, and prescribe, amend, and rescind rules and procedures relating to the Program; (b) grant Awards under the Program, in such forms and amounts and subject to such terms and conditions as it deems appropriate, including, without limitation, Awards which are made in combination with or in tandem with other Awards (whether or not contemporaneously granted) or compensation or in lieu of current or deferred compensation; (c) subject to Article 12, modify the terms of, cancel and reissue, or repurchase outstanding Awards; (d) prescribe the form of agreement, certificate or other instrument evidencing any Award under the Program; (e) correct any defect or omission and reconcile any inconsistency in the Program or in any Award hereunder; (f) to design Awards to satisfy requirements to make such Awards tax-advantaged to Participants in any jurisdiction or for any other reason that the Company desires; and (g) make all other determinations and take all other actions as it deems necessary or desirable for the administration of the Program; provided, however, that it is the Company's intent that no outstanding Option will be canceled for the purpose of reissuing such Option to a Participant at a lower exercise price. The determination of the Committee on matters within its authority shall be conclusive and binding on the Company and all other persons. The Committee shall comply with all applicable law in administering the Plan. As permitted by law (and subject to Section 3.1 herein), the Committee may delegate its authority as identified herein.
3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Program and all related orders and resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, directors, Employees, Consultants, Participants, and their estates and beneficiaries.
Article 4. Eligibility and Participation
4.1 Eligibility. Persons eligible to participate in this Program shall include all Nonemployee Directors and Consultants.
4.2 Actual Participation. Subject to the provisions of the Program, the Committee may, from time to time, select from all eligible Nonemployee Directors and Consultants those to whom Awards shall be granted and shall determine the nature and amount of each Award.
Article 5. Shares Subject to the Program
5.1 Number of Shares Available for Grants. Subject to adjustment as provided in Section 5.4 herein, the number of Shares hereby reserved for delivery to Participants under the Program shall be three hundred thousand (300,000) Shares. Subject to the restrictions for Nonemployee Directors set forth in Articles 6 and 7, the Committee shall determine the appropriate methodology for calculating the number of Shares issued pursuant to the Program.
5.2 Type of Shares. Shares issued under the Program in connection with Options may be authorized and unissued Shares or issued Shares held as treasury Shares. Shares issued under the Program in connection with Restricted Stock shall be issued Shares held as treasury Shares; provided, however, that authorized and unissued Shares may be issued in connection with Restricted Stock to the extent that the Committee determines that past services of the Participant constitute adequate consideration for at least the par value thereof.
5.3 Reusage of Shares.
(a) General. In the event of the exercise or termination (by reason of forfeiture, expiration, cancellation, surrender or otherwise) of any Award under the Program, that number of Shares that was subject to the Award but not delivered shall again be available as Awards under the Program.
(b) Restricted Stock. In the event that Shares are delivered under the Program as Restricted Stock and are thereafter forfeited or reacquired by the Company pursuant to rights reserved upon the grant thereof, such forfeited or reacquired Shares shall again be available as Awards under the Program.
(c) Limitation. Notwithstanding the provisions of Sections 5.3(a) or 5.3(b) above, the following Shares shall not be available for reissuance under the Program: (i) Shares which are withheld from any Award or payment under the Program to satisfy tax withholding obligations (as described in Section 13.3; (ii) Shares which are surrendered to fulfill tax obligations (as described in Section 13.4; and (iii) Shares which are surrendered in payment of the Option Price upon the exercise of an Option.
5.4 Adjustments in Authorized Shares. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 5.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Program, and in the
Award limits set forth in Section 5.1, as may be determined to be appropriate and equitable by the Board, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Award shall always be a whole number. In a stock-for-stock acquisition of the Company, the Committee may, in its sole discretion, substitute securities of another issuer for any Shares subject to outstanding Awards.
Article 6. Stock Options
6.1 Grant of Options. Subject to the discretion of the Committee and the terms and provisions of the Program, during the period beginning January 1, 2001 and ending April 1, 2010, each Nonemployee Director shall receive annually Options to purchase seven thousand five hundred (7,500) Shares, effective as of the day following each annual meeting of the Company's shareholders (but subject to any vesting provisions or other restrictions determined by the Committee). Aside from the foregoing annual grants, no additional Options shall be granted to Nonemployee Directors under the Program.
Subject to the terms and provisions of the Program, Options may be granted to Consultants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee.
If all or any portion of the exercise price or taxes incurred in connection with the exercise are paid by delivery (or, in the case of payment of taxes, by withholding of Shares) of other Shares of the Company, a Participant's Options may provide for the grant of replacement Options. All Options under the Program shall be granted in the form of nonqualified stock options as no Option under the Program may be granted in the form of an incentive stock options as defined under the provisions of Code Section 422.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine.
6.3 Option Price. The Option Price for each grant of an Option under this Program shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted.
6.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary date of its grant.
6.5 Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.
6.6 Payment. Options granted under this Article 6 shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent; or (b) by tendering previously acquired Shares (by either actual delivery or attestation) having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered must have been held by the Participant for at least six (6) months prior to their tender to satisfy the Option Price); or (c) by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Board determines to be consistent with the Program's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name (or, at the discretion of the Participant, jointly in the names of the Participant and the Participant's spouse), Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).
6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. Except as otherwise provided in a Participant's Award Agreement, no Option granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all Options granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant.
6.8 Termination of Directorship or Service. Each Participant's Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's service to the Company as a Nonemployee Director or Consultant. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Article 6, and may reflect distinctions based on the reasons for termination.
6.9 Nontransferability of Options. Except as otherwise provided in a Participant's Award Agreement, no Option granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all Options granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant.
6.10 Substitution of Cash. Unless otherwise provided in a Participant's
Award Agreement, and notwithstanding any provision in the Program to the
contrary (including but not limited to Section 12.3), in the event of a Change
in Control in which the Company's stockholders holding Shares receive
consideration other than shares of common stock that are registered under
Section 12 of the Exchange Act, the Committee shall have the authority to
require that any outstanding Option be surrendered to the Company by a
Participant for cancellation by the Company, with the Participant receiving in
exchange a cash payment from the Company within ten (10) days of the Change in
Control. Such cash payment shall be equal to the number of Shares under Option,
multiplied by the excess, if any, of the greater of (i) the highest per Share
price offered to stockholders in any transaction whereby the Change in Control
takes place, or (ii) the Fair Market Value of a Share on the date the Change in
Control occurs, over the Option Price.
6.11 Elective Grants to Nonemployee Directors in Lieu of Annual Retainer. Subject to the terms and provisions of the Program and any other restrictions set out by the Committee in its sole discretion, the Committee may permit each Nonemployee Director to elect to receive all or a portion of his Annual Retainer in the form of Options to be issued as of the first day of the year for which such Annual Retainer is payable (the "Conversion Date") and using the Fair Market Value of a Share as of the Conversion Date as the Option Price of the Options.
If deferral elections are permitted by the Committee, each irrevocable election shall be made in accordance with such rules as the Committee may determine in its sole discretion. Except as may otherwise be determined by the Committee, in the event of such an election, the number of Options which an electing Nonemployee Director shall receive shall be determined by dividing that portion of the Annual Retainer as to which the election is being made by the Fair Market Value of a Share on the Conversion Date and multiplying the quotient by three (3).
Any portion of a Nonemployee Director's Annual Retainer for which an election has not been made pursuant to this Section 6.11, shall be paid in cash to such Nonemployee Director at such time or times as payments thereof are customarily made by the Company.
Article 7. Restricted Stock
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Program, during the year 2000 only, each Nonemployee Director shall be granted
five thousand (5,000) Shares of Restricted Stock effective as of the later of
(i) April 1, 2000, or (ii) the date of the Nonemployee Director's election to
the Board on or before December 31, 2000.
Subject to the terms and provisions of the Program, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Consultants in such amounts as the Committee shall determine.
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine.
7.3 Restriction on Transferability. Except as provided in this Article 7, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Award Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Program shall be available during his or her lifetime only to such Participant.
7.4 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Program as it may deem advisable including, without limitation, any or all of the following:
(a) A required period of service with the Company, as determined by the Committee, prior to the vesting of Shares of Restricted Stock.
(b) A requirement that Participants forfeit (or in the case of Shares sold to a Participant, resell to the Company at his or her cost) all or a part of Shares of Restricted Stock in the event of termination of his or her service as a Nonemployee Director or Consultant during the Period of Restriction.
(c) A prohibition against such Participants' dissemination of any secret or confidential information belonging to the Company, or the solicitation by Participants of the Company's Employees for employment by another entity.
Shares of Restricted Stock awarded pursuant to the Program shall be registered in the name of the Participant and, if such Shares are certificated, in the sole discretion of the Committee, may be deposited in a bank designated by the Committee or with the Company. The Committee may require a stock power endorsed in blank with respect to Shares of Restricted Stock whether or not certificated.
Except as otherwise provided in this Article 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Program shall become freely transferable (subject to any restrictions under applicable securities law) by the Participant after the last day of the applicable Period of Restriction.
7.5 Voting Rights. At the Committee's sole discretion, Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction.
7.6 Dividends and Other Distributions. At the Committee's sole discretion, during the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may be credited with regular cash dividends paid with respect to the underlying Shares while they are so held. The Committee may apply any restrictions to the dividends that the Committee deems appropriate.
7.7 Termination of Directorship or Service. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive unvested Shares of Restricted Stock following termination of the Participant's service to the Company as a Nonemployee Director or Consultant. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock issued pursuant to the Program, and may reflect distinctions based on the reasons for termination.
Article 8. Beneficiary Designation
Each Participant under the Program may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Program is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate.
Article 9. Deferrals
The Committee may permit or require a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option, or the lapse or waiver of restrictions with respect to Restricted Stock. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.
Article 10. Rights of Nonemployee Directors and Consultants
10.1 Directorship or Provision of Services. Nothing in the Program or any Award Agreement shall interfere with or limit in any way the right of the Company to terminate at any time any Participant's service to the Company as a Nonemployee Director or as a Consultant, nor confer upon any Participant any right to continue in the service of the Company.
10.2 Participation. No Nonemployee Director or Consultant shall have the right to be selected to receive an Award under this Program, or, having been so selected, to be selected to receive a future Award.
Article 11. Change in Control
11.1 Treatment of Outstanding Awards. Subject to Section 11.3, upon the occurrence of a Change in Control and notwithstanding the terms of any Award Agreement, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:
(a) Any and all Options granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term; and
(b) Any restriction periods and restrictions imposed on Shares of Restricted Stock shall lapse.
11.2 Termination, Amendment, and Modifications of Change-in-Control Provisions. Notwithstanding any other provision of this Program (but subject to the limitations of Section 11.3 hereof) or any Award Agreement provision, the provisions of this Article 11 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Program without the prior written consent of the Participant with respect to said Participant's outstanding Awards; provided, however, the Board may terminate, amend, or modify this Article 11 at any time and from time to time prior to the date of a Change in Control.
11.3 Pooling of Interests Accounting. Notwithstanding any provision of the Program or of any Award Agreement to the contrary, in the event that the consummation of a Change in Control is contingent on using pooling of interests accounting methodology, the Board may, in its sole discretion, take any action necessary to preserve the use of pooling of interests accounting.
Article 12. Amendment, Modification, and Termination
12.1 Amendment, Modification, and Termination. Subject to the terms of the Program, the Board may at any time and from time to time, alter, amend, suspend or terminate the Program in whole or in part.
12.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 5.4 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Program.
12.3 Awards Previously Granted. Notwithstanding any provision of the Program or of any Award Agreement to the contrary (but subject to Sections 6.10 and 11.3 hereof), no termination, amendment, or modification of the Program shall adversely affect in any material way any Award previously granted under the Program, without the written consent of the Participant holding such Award.
Article 13. Compliance with Applicable Law and Withholding
13.1 General. The granting of Awards and the issuance of Shares under the Program shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding anything to the contrary in the Program or any Award Agreement, the following shall apply:
(a) The Company shall have no obligation to issue any Shares under the Program if such issuance would violate any applicable law or any applicable regulation or requirement of any securities exchange or similar entity.
(b) Prior to the issuance of any Shares under the Program, the Company may require a written statement that the recipient is acquiring the Shares for investment and not for the purpose or with the intention of distributing the Shares and that the recipient will not dispose of them in violation of the registration requirements of the Securities Act of 1933.
(c) With respect to any Participant who is subject to Section 16(a) of the Exchange Act, the Committee may, at any time, add such conditions and limitations to Award or payment under the Program or implement procedures for the administration of the Program which it deems necessary or desirable to comply with the requirements of Rule 16b-3 of the Exchange Act.
(d) If, at any time, the Company, determines that the listing, registration, or qualification (or any updating of any such document) of any Award, or the Shares issuable pursuant thereto, is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, any Award, the issuance of Shares pursuant to any Award, or the removal of any restrictions imposed on Shares subject to an Award, such Award shall not be granted and the Shares shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company.
13.2 Securities Law Compliance. With respect to Insiders, transactions under this Program are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Program or action by the Committee or the Board fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board.
13.3 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Program.
13.4 Share Withholding. With respect to withholding required upon any taxable event arising as a result of Awards payable in Shares granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares to satisfy their tax obligations. With respect to withholding required upon the exercise of Options, or upon the lapse of restrictions on Shares of Restricted Stock, Participants may only elect to have Shares withheld having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory withholding tax which could be imposed on the transaction. All elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
Article 14. Indemnification
Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Program and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgement in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
Article 15. Successors
All obligations of the Company under the Program with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
Article 16. Legal Construction
16.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
16.2 Severability. In the event any provision of the Program shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Program, and the Program shall be construed and enforced as if the illegal or invalid provision had not been included.
16.3 Governing Law. To the extent not preempted by federal law, the Program, and all Award or other agreements hereunder, shall be construed in accordance with and governed by the laws of the state of Delaware without giving effect to principles of conflicts of laws.
Exhibit 10.15
Edwards Lifesciences Corporation
Employee Stock Purchase Plan
For International Employees
(Effective April 1, 2000)
Edwards Lifesciences Corpration Employee Stock Purchase Plan For International Employees
(Effective April 1, 2000)
ARTICLE I-PURPOSE
1.01. Purpose
The Edwards Lifesciences Corporation Employee Stock Purchase Plan for International Employees is intended to provide a method whereby certain employees of Edwards Lifesciences Corporation and its participating subsidiary corporations (hereinafter referred to, unless the context otherwise requires, as the "Company") will have an opportunity to acquire a proprietary interest in the Company through the purchase of shares of the Common Stock of the Company ("Stock").
ARTICLE II-DEFINITIONS
2.01. Base Pay
"Base Pay" shall mean regular straight-time earnings plus commissions (where legally permissible and administratively feasible) and payments in lieu of regular earnings and any legally mandated bonus or other pay. In the case of a part-time hourly employee, such employee's base pay during an Offering shall be determined by multiplying such employee's hourly rate of pay by the number of regularly scheduled hours of work for such employee during such Offering.
2.02. Committee
"Committee" shall mean the individuals appointed by the Company to administer the Plan as described in Article IX.
2.03. Conversion Rate
"Conversion Rate" shall mean with respect to any non-U.S. currency, the rate established by the Company's Corporate Treasury Department for purposes of converting such currency to United States dollars.
2.04. Eligible Employee
"Eligible Employee" means any regular employee of the Company or a participating subsidiary who is not paid from the United States payroll and is scheduled to work 20 or more hours per
week. Eligible Employee shall also mean any other employee of a participating subsidiary to the extent that local law requires the plan to be extended to such employee. The Committee shall designate the subsidiaries that shall be eligible to participate in the Plan.
2.05. Enrollment Period
"Enrollment Period" shall mean with respect to any Offering, the period designated by the Committee prior to such Offering during which Eligible Employees may authorize payroll deductions through a Subscription. Unless the Committee determines otherwise, the Enrollment Period with respect to any Offering shall end on the fifteenth day of the month immediately preceding the Offering Commencement Date or, if such day is not a business day, the immediately preceding business day, and any Subscription received after such date shall be deemed to be an enrollment in the next following Offering. However, the initial Enrollment Period shall end on the twenty-seventh day of the month immediately preceding the initial Offering Commencement Date, and any Subscription received after such date shall be deemed to be an enrollment in the next following Offering.
2.06. Offering Commencement Date
"Offering Commencement Date" shall mean April 3, 2000 and, unless determined otherwise by the Committee, the first day of each calendar quarter thereafter.
2.07. Offering
"Offering" shall mean the quarterly offering of the Company's Stock.
2.08. Offering End Date
"Offering End Date" shall mean, with respect to each Offering, the day preceding the second annual anniversary of the Offering Commencement Date for such Offering.
2.09. Participant
"Participant" shall mean an Eligible Employee who has elected to participate in an Offering by entering a Subscription during the Enrollment Period for such Offering.
2.10. Plan
"Plan" shall mean the Edwards Lifesciences Corporation Employee Stock Purchase Plan for International Employees, as amended from time to time.
2.11. Purchase Date
"Purchase Date" shall mean with respect to any Offering, the last day of each calendar quarter during the period beginning with the Offering Commencement Date for such Offering and
ending with the Offering End Date; provided, however, if any such day is not a business day on which trading occurs, the Purchase Date shall be the next preceding business date on which shares of Stock are traded.
2.12. Subscription
"Subscription" shall mean an Eligible Employee's authorization for payroll deductions made in the form and manner specified by the Committee (which may include enrollment by submitting forms, by voice response, internet access or other electronic means). Unless withdrawn earlier in accordance with Section 6.02, each Subscription shall be in effect for 24 months. No more than one Subscription may be in effect for an Eligible Employee during any calendar quarter.
2.13. Subsidiary Corporation
"Subsidiary Corporation" shall mean any present or future corporation which
would be a "subsidiary corporation" of the Company as that term is defined in
Section 424 of the U.S. Internal Revenue Code.
ARTICLE III-ELIGIBILITY AND PARTICIPATION
3.01. Initial Eligibility
Any individual who is an Eligible Employee on an Offering Commencement Date shall be eligible to participate in the Offering commencing on such date, subject to the terms and conditions of the Plan.
3.02. Leave of Absence
For purposes of participation in the Plan, a Participant on a leave of absence shall be deemed to be an employee for a period of up to 90 days or, if longer, during the period the Participant's right to reemployment is guaranteed by statute or contract. If the leave of absence is paid, deductions authorized under any Subscription in effect at the time the leave began will continue. If the leave of absence is unpaid, no deductions or contributions will be permitted during the leave. If such a Participant returns to active status within 90 days or the guaranteed reemployment period, as applicable, payroll deductions under the Subscription in effect at the time the leave began will automatically begin again upon the Participant's return to active status unless the Subscription period has expired. If the Participant does not return to active status within 90 days or the guaranteed reemployment period, as applicable, the Participant shall be treated as having terminated employment for all purposes of the Plan. If such individual later returns to active employment as an Eligible Employee, such individual will be treated as a new employee and will be eligible to participate in Offerings commencing after his or her reemployment date by filing a Subscription during the applicable Enrollment Period for such Offering.
3.03. Restrictions on Participation
Notwithstanding any provisions of the Plan to the contrary, no Eligible Employee shall be granted an option to participate in the Plan which permits the employee's rights to purchase stock under all employee stock purchase plans of the Company to accrue at a rate which exceeds $25,000 in fair market value of the stock (determined at the time such option is granted) for each calendar year in which such option is outstanding.
3.04. Commencement of Participation
An Eligible Employee may become a Participant in any Offering by entering a Subscription during the Enrollment Period for such Offering. Payroll deductions for such Offering shall commence on the applicable Offering Commencement Date and shall end on the applicable Offering End Date unless withdrawn by the Participant or sooner terminated in accordance with Article VII. Only one Subscription may be in effect with respect to any Participant at any one time.
3.05. Participation After Rehire
An Eligible Employee's Subscription will automatically terminate on his or her termination of employment with the Company. If the Eligible Employee terminates employment with a Subscription in effect with respect to an Offering and is rehired prior to the Offering End Date for that Offering, the Subscription will not be reinstated and the Eligible Employee will not be allowed to again make payroll deductions under such Offering. The Eligible Employee may elect to participate in Offerings commencing after his or her reemployment date by entering a Subscription during the applicable Enrollment Period for such Offering.
3.06. United States Employees/United States Transfers
Eligible Employees who transfer outside of the United States and are placed on a non-U.S. payroll may not participate in Offerings which had an Offering Commencement Date prior to such transfer, regardless of whether such Eligible Employee was participating in an offering under a stock purchase plan for United States employees prior to the transfer. Such Eligible Employee may participate in Offerings commencing after such transfer, by entering a Subscription during the applicable Enrollment Period for such Offering.
A Participant who transfers to the United States and is placed on the U.S. payroll will be treated as a terminated Participant under this Plan. Such Participant shall have the right to elect, in such form as the Committee may require, prior to the earlier of (i) the three month anniversary of such transfer date, or (ii) the Offering End Date, to buy out the remaining shares in his or her Subscription. For purposes of the Plan, Puerto Rico is not considered U.S. payroll.
ARTICLE IV-OFFERINGS
4.01. Quarterly Offerings
The Plan will be implemented by Offerings beginning on April 3, 2000 and, unless determined otherwise by the Committee, on the first day of each calendar quarter thereafter. Eligible Employees may not have in effect more than one Subscription at a time.
Participants may subscribe to any Offering by entering a Subscription during the Enrollment Period for such Offering in such manner as the Committee may prescribe (which may include enrollment by submitting forms, by voice response, internet access or other electronic means).
A Subscription that is in effect on an Offering End Date will automatically be deemed to be a Subscription for the Offering that commences immediately following such Offering End Date, provided that the Participant is still an Eligible Employee and has not withdrawn the Subscription. Under the foregoing automatic enrollment provisions, payroll deductions will continue at the level in effect immediately prior to the new Offering Commencement Date, unless changed in advance by the Participant in accordance with Section 5.03.
4.02. Purchase Price
The purchase price per share of Stock under each Offering shall be the lower of:
(a) 85% of the closing price of the Stock on the Offering Commencement Date or the nearest preceding business day on which trading occurred on the New York Stock Exchange; or
(b) 85% of the closing price of the Stock on the Purchase Date or the nearest prior business day on which trading occurred on the New York Stock Exchange. If the Common Stock of the Company is not admitted to trading on any of the aforesaid dates for which closing prices of the stock are to be determined, then reference shall be made to the next preceding date on which Common Stock was so admitted.
Such purchase price may only be paid with accumulated payroll deductions in accordance with Article V. For purposes of the initial Offering, "the closing price" shall be replaced by "the average of the opening price and closing price" in 4.02(a), above.
ARTICLE V-PAYROLL DEDUCTIONS
5.01. Amount of Deduction
An Eligible Employee's Subscription shall authorize payroll deductions at a rate, in whole percentages, of no less than 1% and no more than 12% of Base Pay on each payday that the Subscription is in effect.
5.02. Participant's Account
All payroll deductions made with respect to a Participant shall be credited to his or her recordkeeping account under the Plan. A Participant may not make any separate cash payment into such account. No interest will accrue or be paid on any amount withheld from a Participant's pay under the Plan or credited to the Participant's account. Except as otherwise provided in this Section 5.02, all amounts in a Participant's account will be used to purchase Stock and no cash refunds shall be made from such account. Any amounts remaining in a Participant's account pursuant to the Participant's Subscription election or because of the limitations of Section 3.03 shall be returned to the Participant without interest and will not be used to purchase shares with respect to any other Offering under the Plan.
5.03. Changes in Payroll Deductions
During an Offering period, a Participant may change his or her level of payroll deduction with respect to such Offering within the limits described in Section 5.01 in accordance with procedures established by the Committee (including, without limitation, rules relating to the frequency of such changes); provided, however, if the Participant reduces his or her payroll deductions to zero, it shall be deemed to be a withdrawal of the Subscription and the Participant may not thereafter participate in such Offering but must wait until the next quarterly Offering to resubscribe to the Plan. Any such discontinuance or change in level shall be effective as soon as administratively practicable.
ARTICLE VI-EXERCISE OF OPTION
6.01. Automatic Exercise
A Participant's option for the purchase of Stock with respect to any Offering will be automatically exercised on each Purchase Date for the Offering. The option will be exercised by using the accumulated payroll deductions in the Participant's account as of each such Purchase Date to purchase the number of full and fractional shares of Stock that may be purchased at the purchase price on such date, determined in accordance with Section 4.02. If the Participant is
paid in a non-U.S. currency, the Participant's accumulated payroll deductions shall be converted into U.S. dollars using the Conversion Rate in effect on the Purchase Date.
6.02. Withdrawal From Offering
A Participant may not withdraw the accumulated payroll deductions in his or her account during an Offering period. If the Participant withdraws his or her Subscription with respect to any Offering, the accumulated payroll deductions in the Participant's account at the time the Subscription is withdrawn will be used to purchase shares of Stock at the next Purchase Date for the Offering to which the Subscription related, in accordance with Section 6.01.
6.03 Delivery of Stock
Stock purchases under the Plan will be held in an account in the Participant's name in uncertificated form unless certification is requested by the Participant.
ARTICLE VII-WITHDRAWAL
7.01. Effect on Subsequent Participation
A Participant's election to withdraw from any Offering will not have any effect upon the Participant's eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by the Company.
7.02. Termination of Employment
Subject to the following provisions of this Section 7.02, upon termination of the Participant's employment for any reason, any Subscription then in effect will be deemed to have been withdrawn and any payroll deductions credited to the Participant's account will be used to purchase Stock on the next Purchase Date for the Offering with respect to which such deductions relate. Notwithstanding the foregoing, if the Participant has a Subscription in effect on the Participant's termination of employment, payroll deductions (at the rate in effect on the termination date) shall continue to be made from Base Pay earned prior to termination of employment, if any, that is paid to the Participant after such termination of employment and before the earlier of (i) the three- month anniversary of such termination of employment, or (ii) the Offering End Date of such Offering. Any such payroll deduction shall be used to purchase Stock on the next Purchase Date for the Offering after the deduction is made.
ARTICLE VIII-STOCK
8.01. Maximum Shares
The maximum number of shares which may be issued under the Plan, subject to adjustment upon changes in capitalization of the Company as provided in Section 10.04, shall be 10,000,000 shares. If the total number of shares for which options are exercised on any Purchase Date in accordance with Article IV exceeds the maximum number of shares for the applicable Offering, the Company shall make a pro rata allocation of the shares available for delivery and distribution in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable, and the balance of payroll deductions credited to the account of each Participant under the Plan shall be returned to him as promptly as possible.
8.02. Participant's Interest in Option Stock
The Participant will have no interest in Stock covered by an option under the Plan until such option has been exercised.
8.03. Registration of Stock
Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant.
ARTICLE IX-ADMINISTRATION
9.01. Appointment of Committee
The Board of Directors shall appoint a Committee to administer the Plan. No member of the Committee who is not an Eligible Employee shall be eligible to purchase Stock under the Plan.
9.02. Authority of Committee
Subject to the express provisions of the Plan, the Committee shall have plenary authority in its discretion to interpret and construe any and all provisions of the Plan, to adopt rules and regulations for administering the Plan, and to make all other determinations deemed necessary or advisable for administering the Plan. The Committee's determination on the foregoing matters shall be conclusive. The Committee shall also have the authority to determine whether the employees of divisions or subsidiaries of the Company organized or acquired after the Effective Date shall be eligible for participation in the Plan.
9.03. Rules Governing the Administration of the Committee
The Board of Directors may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed and may fill vacancies, however caused, in the Committee. The Committee may select one of its members as its Chairman and shall hold its meetings at such times and places as it shall deem advisable and may hold telephonic meetings. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. The Committee may correct any defect or omission or reconcile any inconsistency in the Plan, in the manner and to the extent it shall deem desirable. Any decision or determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary and shall make such rules and regulations for the conduct of its business as it shall deem advisable.
9.04. Statements
Each Participant shall receive a statement of his account showing the number of shares of Stock held and the amount of cash credited to such account. Such statements will be provided as soon as administratively feasible following the end of each calendar quarter.
ARTICLE X-MISCELLANEOUS
10.01. Transferability
Neither payroll deductions credited to a Participant's account nor any rights with regard to the exercise of an option or to receive Stock under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the Participant other than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge or other disposition shall be without effect. During a Participant's lifetime, options held by such Participant shall be exercisable only by that Participant.
10.02. Use of Funds
All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose and the Company shall not be obligated to segregate such payroll deductions; provided, however, such amounts shall be held in trust or otherwise segregated from the Company's general assets to the extent required under local law.
10.03. Adjustment Upon Changes in Capitalization
In the event of a stock split, stock dividend, recapitalization, reclassification or combination of shares, merger, sale of assets or similar event, the Committee shall adjust equitably (a) the number and class of shares or other securities that are reserved for sale under the Plan, (b) the
number and class of shares or other securities that are subject to outstanding
options, and (c) the appropriate market value and other price determinations
applicable to options. The Committee shall make all determinations under this
Section 10.03, and all such determinations shall be conclusive and binding.
10.04. Amendment and Termination
The Board of Directors shall have complete power and authority to terminate or
amend the Plan; provided, however, that the Board of Directors shall not,
without the approval of the stockholders of the Company (i) increase the maximum
number of shares which may be issued under any Offering (except pursuant to
Section 10.03); (ii) amend the requirements as to the class of employees
eligible to purchase stock under the Plan; or (iii) permit the members of the
Committee to purchase stock under the Plan.
Upon termination, any cash remaining in Participant accounts will be applied to the purchase of Stock. For purposes of valuing the Stock, the closing price of the Stock on the New York Stock Exchange on the most recent preceding trading day will determine the purchase price. At the discretion of the Board of Directors, Participants will be permitted to exercise their options for any unpurchased shares by either requiring direct payment from the Participants, cashless exercise or any other arrangement deemed appropriate by the Board of Directors.
10.05. Effective Date
This Plan shall be effective as of April 1, 2000.
10.06. No Employment Rights
The Plan does not, directly or indirectly, create any right for the benefit of any employee or class of employees to purchase any shares under the Plan, or create in any employee or class of employees any right with respect to continuation of employment by the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an employee's employment at any time.
10.07. Effect of Plan
The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each employee participating in the Plan, including, without limitation, such employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such employee.
10.08. Governing Law
The law of the State of California will govern all matters relating to this Plan except to the extent it is superseded by the laws of the United States.
IN WITNESS WHEREOF, the company has caused this instrument to be executed on the ___ day of _________________, 2000.
EDWARDS LIFESCIENCES CORPORATION
By:__________________________________
Its:_________________________________
Exhibit 21.1
At the time of distribution, the following corporations will be wholly-owned subsidiaries of Edwards Lifesciences Corporation:
STATE OF COUNTRY OF
INCORPORATION/ INCORPORATION/
LEGAL ENTITY FORMATION FORMATION
------------ -------------- --------------
Benchmark, Inc. Utah U.S.
Edwards Lifesciences Cardiovascular Resources, Inc. Pennsylvania U.S.
Edwards Lifesciences Corporation of Puerto Rico Delaware U.S.
Edwards Lifesciences Japan Holdings Inc. Delaware U.S.
Edwards Lifesciences LLC Delaware U.S.
Edwards Lifesciences Research Medical, Inc. Utah U.S.
Edwards Lifesciences Sales Corporation Delaware U.S.
Edwards Lifesciences Sub Inc. Delaware U.S.
Edwards Lifesciences (U.S.) Inc. Delaware U.S.
Edwards Lifesciences World Trade Corporation Delaware U.S.
PSICOR Merger Corporation Delaware U.S.
Edwards Lifesciences Austria GmbH Austria
Edwards Lifesciences S.P.R.L. Belgium
Edwards Lifesciences Macchi Ltda. Brazil
Edwards Lifesciences (Canada) Inc. Canada
Edwards Lifesciences Holding A/S Denmark
Edwards Lifesciences Limited England
Edwards Lifesciences SAS France
Edwards Lifesciences Holding GmbH Germany
Edwards Lifesciences GmbH Germany
PAS Palzer GmbH & Co. KG Germany
PAS Palzer Verwaltungs GmbH Germany
Edwards Lifesciences (India) Pte Ltd. India
CVG Italia SpA Italy
Edwards Lifesciences Limited Japan
Edwards Lifesciences Finance Limited Japan
Edwards Lifesciences Korea Co., Ltd. Korea
Edwards Lifesciences Mexico, S.A. de C.V. Mexico
Edwards Lifesciences BV The Netherlands
Edwards Lifesciences Uden BV The Netherlands
Edwards Lifesciences SL Spain
Edwards Lifesciences AG Switzerland
Edwards Lifesciences Holding AG Switzerland
Edwards Lifesciences GmbH Switzerland
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